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.
Share
Exchange
On
November 2, 2008, NeoStem, Inc., a Delaware corporation ("NeoStem"), entered
into a Share Exchange Agreement (the “Share Exchange Agreement”), with China
StemCell Medical Holding Limited, a Hong Kong company (the "HK Entity"),
Shandong New Medicine Research Institute of Integrated Traditional and Western
Medicine Limited Liability Company, a China limited liability company
("Shandong"), Beijing HuaMeiTai Bio-technology Limited Liability Company
(“WFOE”) and Zhao Shuwei, the sole shareholder of the HK Entity (“HK
Shareholder”), pursuant to which NeoStem agreed to acquire from the HK Entity
all of the outstanding interests in the HK Entity, and through a series of
contractual arrangements described below, establish control over Shandong.
Shandong is
engaged in the business (the "Shandong Business") of research, development
popularization and transference of regenerative medicine technology (except
for
those items for which it does not have special approval) in the People's
Republic of China (the "PRC").
The
HK Shareholder owns 100% of the ownership interests in the HK Entity, and the
HK
Entity owns 100% of ownership interests in the WFOE. The WFOE has established
control over Shandong through a series of contractual arrangements memorialized
through several documents known as variable interest entity documents
(collectively, the “VIE Documents”). The relevant VIE Documents, to which the
WFOE, Shandong and the founder of Shandong, Dr. Wang Taihua, are parties,
include a power of attorney, an exclusive technical and consulting service
agreement, a loan agreement, a share pledge agreement and an exclusive option
agreement.
Pursuant
to the terms and subject to the conditions set forth in the Share Exchange
Agreement, NeoStem will acquire all of the outstanding shares of capital stock
of the HK Entity (the "HK Shares"), in exchange (the "Share Exchange") for
up to
5,000,000 shares (the “Exchange Shares”) of common stock, par value $.001 per
share, of NeoStem (the "NeoStem Common Stock"). The Exchange Shares will be
issuable at the closing of the transactions contemplated by the Share Exchange
Agreement (the "Closing") as follows: (i) 4,000,000 shares of NeoStem Common
Stock will be issued to the HK Shareholder and (ii) 1,000,000 shares of NeoStem
Common Stock will be issued to the HK Shareholder in escrow (the "Escrow
Shares"), the certificates for which will be held pursuant to the terms of
an
escrow agreement to be entered into between NeoStem and the HK Shareholder.
Subject to the terms and conditions of the escrow agreement, 500,000 Escrow
Shares will be released from escrow within 30 days after the first 50,000,000
RMB (or approximately U.S. $7,100,000) sales revenue are achieved in the PRC
by
Shandong (the "Revenue Milestone") and 500,000 Escrow Shares will be released
within 30 days after the last of three collection and storage banks in three
provinces in the PRC (i.e.,
one
such bank in each such province) is established by Shandong (the "Storage Bank
Milestone"). 500,000 Escrow Shares will revert to NeoStem if the Revenue
Milestone is not met on or before December 31, 2009 and 500,000 Escrow Shares
will revert to NeoStem if the Storage Bank Milestone is not met on or before
the
date of the second anniversary of the Closing.
In
connection with the Share Exchange, 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”) to, among other things,
seek stockholder approval of the Share Exchange. The Share Exchange has been
approved by the NeoStem Board of Directors, subject to approval by the
stockholders of NeoStem.
2
The
transactions contemplated by the Share Exchange 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 or quoted) of the
Exchange Shares, stockholder approval, regulatory approval and other customary
closing conditions set forth in the Share Exchange Agreement. The Share Exchange
currently is expected to close in the first quarter of 2009.
The
foregoing description of the Share Exchange Agreement is not complete and is
qualified in its entirety by reference to the Share Exchange 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 Share
Exchange Agreement, a copy of which is filed as Exhibit 99.1 hereto and
incorporated herein by reference.
Risk
Factors Relating to the Share Exchange
You
are
urged to read all relevant documents filed with the Securities and Exchange
Commission, including, without limitation, the Proxy Statement/Registration
Statement, because they will contain important information about NeoStem and
the
proposed Share Exchange, including risk factors relating thereto. Set forth
below are certain risk factors relating to the proposed Share Exchange of which
you should be aware. More complete risk factors relating to the proposed Share
Exchange will be included in the Proxy Statement/Registration Statement.
If
the government of the PRC determines that the arrangements that establish the
structure for operating the Shandong Business do not comply with PRC government
restrictions on foreign investment in the relevant industry, NeoStem may be
subject to severe consequences and penalties.
Pursuant
to the Share Exchange Agreement, NeoStem will acquire the HK Entity, which
owns
the WFOE, and the WFOE has established control over Shandong through the VIE
Documents. As a Delaware corporation, NeoStem is classified as a foreign
enterprise under PRC law, and the WFOE is classified as a foreign-invested
enterprise. Because various regulations in China currently restrict or prevent
foreign-invested entities from holding certain licenses and controlling
businesses in certain industries, NeoStem must rely on the contractual
relationships memorialized in the VIE Documents to control the business,
personnel, and financial affairs of Shandong.
The
PRC laws and regulations governing business entities are often vague and
uncertain. There is a particular lack of clarity in the PRC law applicable
to
the arrangements establishing the operating structure. Despite the uncertain
application of PRC law, the structure of the WFOE, together with the contractual
arrangements under the VIE Documents, has been implemented successfully where
foreign-invested entities have participated in controlling PRC entities engaged
in restricted businesses. However, PRC law is more vague on the subject of
utilizing such structure in the context of prohibited businesses in which
Shandong may engage. Given this lack of clarity in PRC law, if NeoStem is found
to be in violation of any existing or future PRC laws, regulations, and/or
circulars, the relevant regulatory authorities would have broad discretion
in
dealing with such violation, including levying fines, confiscating NeoStem's
income, revoking business and/or operating licenses, requiring NeoStem to
restructure the relevant ownership structure or operations, and requiring
NeoStem to discontinue all or any portion of its operations in the PRC. Any
of
these actions could cause significant disruption to NeoStem's business
operations and may materially and adversely affect NeoStem's business, financial
condition and results of operations. There can be no assurance that NeoStem
will
not be found in violation of any current or future PRC laws, regulations, and/or
circulars.
3
The
WFOE’s contractual arrangements with Shandong and its equity owners as
memorialized in the VIE documents may not be as effective in providing control
over Shandong as direct ownership of Shandong.
NeoStem
intends to conduct substantially all of the Shandong Business in the PRC and
generate substantially all of its revenues from the Shandong Business vis-à-vis
the WFOE and Shandong, through contractual arrangements with Shandong and its
equity owners that provide NeoStem with effective control over Shandong. NeoStem
will depend on Shandong to hold and maintain certain licenses and other relevant
government approvals necessary for its business activities. Shandong also owns
certain assets relating to its business and operations, and employs the
personnel necessary to carry out such business and operations. NeoStem will
have
no ownership interest in Shandong. The contractual arrangements as embodied
in
the VIE Documents may not be as effective in providing NeoStem with control
over
Shandong as direct ownership of Shandong. In addition, Shandong or its equity
owners may breach the contractual arrangements.
Employees
and/or officers of Shandong may encounter conflicts of interest between their
duties to NeoStem and to Shandong. There can be no assurance that when conflicts
of interest arise, the ultimate equity owners of Shandong will act completely
in
NeoStem's interests or that conflicts of interest will be resolved in NeoStem's
favor. These ultimate equity owners could violate any applicable non-competition
or employment agreements or their legal duties by diverting business
opportunities from NeoStem to others. In any event, we would have to rely on
legal remedies under PRC law. These remedies may not always be effective in
vindicating our rights, particularly in light of the uncertainties of the PRC
legal system.
Following
the Share Exchange, 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. Our 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.
4
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 Share Exchange 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 Share Exchange. Investors and security holders are advised to read the
Proxy
Statement/Registration Statement when it becomes available because it contains
important information about NeoStem, the proposed Share Exchange 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 Share Exchange;
failure of NeoStem’s stockholders to approve the Share Exchange; an inability to
satisfy the conditions of the Share Exchange; NeoStem's inability to maintain
its American Stock Exchange listing; the inability to integrate NeoStem’s and
Shandong's businesses successfully; the need for outside financing to meet
capital requirements; 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 to be disclosed
in 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.
This
Current Report on Form 8-K may be deemed to be solicitation material in respect
of the proposed Share Exchange. The directors and executive officers of NeoStem
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 in connection
with
the proposed Share Exchange by reading the Proxy Statement/Registration
Statement when it becomes available.
5
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits
Exhibit
2.1 - Share Exchange Agreement, dated as of November 2, 2008, by and among
NeoStem, the HK Entity, the WFOE, Shandong and the HK Shareholder.*
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
SEC upon request.
6
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
7
Exhibit
2.1
THIS
SHARE EXCHANGE AGREEMENT (this “Agreement”)
is
made and entered into as of this 2nd day of November 2008, by and among NeoStem,
Inc., a Delaware corporation (“NeoStem”),
China
StemCell Medical Holding Limited, a Hong Kong company (the "HK
Entity"),
Shandong New Medicine Research Institute of Integrated Traditional and Western
Medicine Limited Liability Company, a China limited liability company (the
"Institute
Co. ")
(its
preexistence is Shandong New Medicine Research Institute of Integrated
Traditional and Western Medicine, “Institute”),
Beijing HuaMeiTai Bio-technology Limited Liability Company (“WFOE”)
and
Zhao Shuwei (“HK
Shareholder”).
WITNESSETH
WHEREAS,
NeoStem
is a publicly-held corporation organized under the laws of the State of Delaware
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 to technology to identify and isolate very
small embryonic-like stem cells;
WHEREAS,
HK
Entity is a private company organized under the laws of Hong Kong for the
purpose of assuming, through a wholly foreign-owned enterprise organized under
the laws of the People's Republic of China (the "WFOE"),
the
management of the business activities of Institute Co., a limited liability
company organized under the laws of the People's Republic of China engaged
in
the business of research, development popularization and transference of
regenerative medicine technology (except for those items for which it does
not
have special approval);
WHEREAS,
following the satisfaction of certain conditions, NeoStem desires to acquire
100% of the issued and outstanding shares of capital stock of the HK Entity
from
the HK Shareholder in exchange (the “Exchange”)
for
the issuance by NeoStem of shares of common stock, $.001 par value, of NeoStem
(the "NeoStem
Common Stock"),
and
the HK Shareholder desire to exchange his shares of capital stock of the HK
Entity for shares of NeoStem Common Stock, subject to and in accordance with
the
terms and conditions of 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
DEFINITIONS
As
used
in this Agreement, the following terms shall have the following meanings unless
the context otherwise requires:
“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. “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.
“Ancillary
Agreements” means the Employment Agreement, the Escrow Agreement and any other
agreement which is required to be executed to effect the transactions
contemplated herein.
“Business”
means the business and operations of the Seller Group as previously or currently
conducted or contemplated to be conducted.
“Business
Day” shall mean any calendar day that is not a Saturday, Sunday, public holiday
under the laws of the state of New York, or a day on which banks located in
the
city of New York are authorized or required to be closed.
“Code”
means the Internal Revenue code of 1986, as amended.
“Consent”
means any consent, approval, authorization, waiver, permit, grant, franchise,
concession, agreement, license, certificate, exemption, order, registration,
declaration, filing, report or notice of, with or to any Person.
“Contract”
means all loan agreements, indentures, letters of credit (including related
letter of credit applications and reimbursement obligations), mortgages,
security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, surety obligations, warranties, licenses, franchises, permits,
powers of attorney, purchase orders, leases, and other agreements, contracts,
instruments, obligations, offers, commitments, arrangements and understandings,
written or oral, to which a party or by which it or any of its properties or
assets may be bound or affected, in each case as amended, supplemented, waived
or otherwise modified, that are of the types listed in clauses (a) through
(m)
below:
(a) leases,
subleases, licenses, occupancy agreements, permits, franchises, insurance
policies, agreements, Governmental Approvals and other Contracts concerning
or
relating to the Real Property;
(b) employment,
consulting, severance, agency, bonus, compensation, or other trusts, funds
and
other contracts relating to or for the benefit of current, future or former
employees, officers, directors, sales representatives, distributors, dealers,
agents, independent contractors or consultants (whether or not legally binding),
including sales agency or distributorship agreements or arrangements for the
sale of any of the products or services of any such party; loan agreements,
indentures, letters of credit (including related letter of credit applications
and reimbursement obligations), mortgages, security agreements, pledge
agreements, deeds of trust, bonds, notes, guarantees, instruments and other
contracts relating to the borrowing of money or obtaining of or extension of
credit;
(c) licenses,
licensing arrangements and other contracts providing in whole or in part for
the
use of, or limiting the use of, any Intellectual Property;
-2-
(d) joint
venture, partnership and similar contracts involving a sharing of profits or
expenses;
(e) stock
purchase agreements, asset purchase agreements and other acquisition or
divestiture agreements, including but not limited to any agreements relating
to
the acquisition, lease or disposition of any such party, any material assets
or
properties (other than sales of inventory made in the ordinary course of
business), any business, or any capital stock of or other interest in any such
party, within the last ten years, or involving continuing indemnity or other
obligations;
(f) Contracts
prohibiting or materially restricting the ability of any such party, to engage
in any business or operate in any geographical area or to compete with any
Person;
(g) orders
and other contracts for the purchase or sale of materials, supplies, products
or
services, involving aggregate payments in excess of $50,000;
(h) orders
and other Contracts with or for the direct or indirect benefit of any Person
in
the Seller Group or any Affiliate thereof (whether or not legally
binding);
(i) Contracts
providing for future payments that are conditioned, in whole or in part, on
a
change in control of any such party;
(j) powers
of
attorney, except routine powers of attorney relating to representation before
governmental agencies or given in connection with qualification to conduct
business in another jurisdiction;
(k) Contracts
not entered into in the ordinary course of business;
(l) Contract
or series of related contracts with respect to which the aggregate amount that
could reasonably expected to be paid or received thereunder in the future
exceeds $25,000 per annum or an aggregate of $50,000 under the term of the
contract; and
(m) Contracts
that are or will be material to the business, operations, results of operations,
condition (financial or otherwise), assets or properties of any such
party.
“Employment
Agreement” shall have the meaning set forth in Section 6.1(e)
herein.
“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; however, does not include any
such
encumbrance, charge or other restriction or limitations arising under or as
contemplated by the Loan Agreement (as defined herein).
-3-
“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, Environmental Protection Law of the People's
Republic of China, Law of the People's Republic of China on Appraising of
Environmental Impacts, Law of the People's Republic of China on the 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.
“FCPA”
mean the U.S. Foreign Corrupt Practices Act of 1977.
“Government
Approval” means any consent of, with or to any Governmental
Authority.
“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof; any entity, authority or body exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, any government authority, agency,
department, board, commission or instrumentality of the British Virgin Islands,
Hong Kong, the People's Republic of China, or the United States, any state
or
any political subdivision thereof; any court, tribunal or arbitrator; and any
self-regulatory organization thereof.
“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.
“Indebtedness”
as applied to any Person, means, without duplication, (a) all indebtedness
for
borrowed money, (b) all obligations evidenced by a note, bond, debenture, letter
of credit, draft or similar instrument, (c) that portion of obligations with
respect to capital leases that is properly classified as a liability on a
balance sheet in conformity with U.S. GAAP, (d) notes payable and drafts
accepted representing extensions of credit, (e) any obligation owed for all
or
any part of the deferred purchase price of property or services, which purchase
price is due more than six months from the date of incurrence of the obligation
in respect thereof, and (f) all indebtedness and obligations of the types
described in the foregoing clauses (a) through (e) to the extent secured by
any
Encumbrance on any property or asset owned or held by that Person regardless
of
whether the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person.
-4-
“Intellectual
Property” means the United States and foreign trademarks, service marks,
collective marks, certification marks, trade names, trade dress, copyrights,
and
similar rights, including registrations and applications to register or renew
the registration of any of the foregoing or the equivalent under the laws of
the
People's Republic of China, the United States and foreign letters patent and
patent applications, and inventions, processes, designs, formulae, trade
secrets, know-how, confidential information, computer software, data and
documentation, and all similar intellectual property rights, or the equivalent
under the laws of the People's Republic of China, tangible embodiments of any
of
the foregoing (in any medium including electronic media), and licenses of any
of
the foregoing.
“IRS”
means the Internal Revenue Service.
“Law”
means all applicable provisions of all (a) constitutions, treaties, statutes,
laws (including the common law), codes, rules, regulations, ordinances or orders
of any Governmental Authority, (b) Governmental Approvals and (c) orders,
decisions, injunctions, judgments, awards and decrees of or agreements with
any
Governmental Authority.
“Leases”
means the real property leases, subleases, licenses and occupancy agreements
pursuant to which any Person in the Seller Group is the lessee, sublessee,
licensee, user or occupant of real property used in or held for use in
connection with, necessary for the conduct of, or otherwise material to, the
Business.
“Leased
Real Property” means all interests leased pursuant to the Leases.
“Litigation”
means any action, cause of action, claim, demand, suit, proceeding, citation,
summons, subpoena, inquiry or investigation of any nature, civil, criminal,
regulatory or otherwise, in law or in equity, pending or threatened, by or
before any court, tribunal, arbitrator or other Governmental
Authority.
“Material
Adverse Effect” means any (a) event, occurrence, fact, condition, change,
development or effect that is or may be materially adverse to the business,
operations, results of operations, condition (financial or otherwise),
properties (including intangible properties), assets (including intangible
assets), liabilities or prospects of any Person in the Seller Group or (b)
material impairment of the ability of any Person in the Seller Group to perform
its respective obligations hereunder or under the Ancillary
Agreements.
“Organizational
Documents” means, as to any Person, its certificate or articles of
incorporation, by-laws and other organizational documents.
“Owned
Real Property” means the real property owned by any Person in the Seller Group,
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 any Person in the Seller Group
and
located on Leased Real Property, and all easements, licenses, rights and
appurtenances relating to the foregoing.
“Person”
shall mean any individual, corporation, partnership, joint venture, trust,
business association, organization, Governmental Authority or other
entity.
-5-
“Permitted
Encumbrance” means (a) Encumbrances reserved against in the most recent balance
sheet, to the extent so reserved, (b) Encumbrances for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on books
of
any Person in the Seller Group in accordance with U.S. GAAP, or (c) those
Encumbrances that (i) are set forth in Schedule 3.11(b) and (ii) individually
and in the aggregate with all other Permitted Encumbrances, do not and will
not
materially detract from the value of any of the property or assets of any Person
in the Seller Group, or materially interfere with the use thereof as currently
used or contemplated to be used, or otherwise have or result in a Material
Adverse Effect.
“Real
Property” means the Owned Real Property and the Leased Real
Property.
“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.
“Representatives”
means, as to any Person, its accountants, counsel, consultants, officers,
directors, employees, agents and other advisers and
representatives.
“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.
“Seller
Group” means the HK Entity, the WFOE, the Institute Co., the shareholder of the
Institute and each of their respective Subsidiaries and any other entity that
is
an Affiliate thereof or any of its Subsidiaries. Unless the context expressly
indicates to the contrary, each reference herein to the Seller Group constitutes
a reference to the HK Entity, the HK Entity, the Institute and each other Person
that is part of the Seller Group. Any reference herein to a “Person in the
Seller Group” refers to each of, the HK Entity, the Institute Co., each of their
Subsidiaries and any other entity that is an Affiliate thereof or any of its
Subsidiaries.
“Subsidiary”
means each corporation or other Person in which a Person owns or controls,
directly or indirectly, capital stock or other equity interests representing
more than 50% of the outstanding voting stock or other equity
interests.
“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).
“Tax
Return” means any return, report, declaration, form, claim for refund or
information return or statement relating to any Tax, including any schedule
or
attachment thereto, and including any amendment thereof.
-6-
“$”
or
“US$” means United States Dollars.
ARTICLE
II
PLAN
OF EXCHANGE
Section
2.1 The
Exchange.
(a) On
the
terms and subject to the conditions set forth in this Agreement, on the Closing
Date, the HK
Shareholder shall assign, transfer and deliver to NeoStem, free and clear of
all
Encumbrances, an aggregate of ten thousand (10,000) shares of HK Common Stock
(as defined herein) (collectively, the "HK
Shares"),
which
HK Shares shall constitute all of the issued and outstanding shares of capital
stock of the HK Entity. In exchange for the HK Shares, NeoStem shall issue
to
the HK Shareholder an aggregate of up to five million (5,000,000) shares of
NeoStem Common Stock (the “Exchange
Shares”),
which
shall be issuable as follows:
(i)
NeoStem shall issue an aggregate of four million (4,000,000) shares of NeoStem
Common Stock to the HK Shareholder, the certificate for which shall be delivered
to the HK Shareholder at the Closing;
(ii)
at
the Closing, NeoStem shall issue an aggregate amount of one million (1,000,000)
shares of NeoStem Common Stock to the HK Shareholder (collectively, the
"Escrow
Shares"),
the
certificates for which shall be deposited with the Escrow Agent (as defined
below) in accordance with Section 2.2.
(b) At
the
Closing, each of the HK Shareholder shall deliver to NeoStem certificates
representing his or her shares of capital stock of the HK Entity duly endorsed
or accompanied by stock powers duly endorsed in blank, or if certificates are
not then available, affidavits of loss in a form reasonably acceptable to
NeoStem in lieu thereof, which in the aggregate shall represent 100% of the
equity securities of the HK Entity.
Section
2.2 Escrow
Certificates.
At
the
Closing, NeoStem shall deliver to an escrow agent to be mutually agreed to
by
the HK Shareholder and NeoStem prior to the Closing (the “Escrow
Agent”),
certificates representing the Escrow Shares (the "Escrow
Certificates"),
which
Escrow Certificates shall be held and disbursed by the Escrow Agent in
accordance with and subject to the terms and conditions of an escrow agreement
among NeoStem, the HK Shareholder and the Escrow Agent, in the form of
Exhibit
A
attached
hereto (the “Escrow
Agreement”).
The
Escrow Agreement shall provide for release of Escrow Certificates as follows
(i)
500,000 Escrow Shares shall be released from escrow within 30 days after the
first 50,000,000 RMB sales revenue are achieved in China by the Institute Co.
(the "Revenue
Milestone")
and
(ii) 500,000 Escrow Shares shall be released within 30 days after the last
of
three specimen collection and storage banks in three provinces in China
(i.e.,
one
such bank in each such province) is established by the Institute Co. (the
"Storage
Bank Milestone").
500,000 Escrow Shares shall revert to NeoStem if the Revenue Milestone is not
met on or before December 31, 2009 and 500,000 Escrow Shares shall revert to
NeoStem if the Storage Bank Milestone is not met on or before the date of the
second anniversary of the Closing. The fees and expenses of the Escrow Agent
shall be borne 50% by NeoStem and 50% by the HK Shareholder in accordance with
the terms and conditions of the Escrow Agreement.
-7-
Section
2.3 Closing.
The
closing (“Closing”)
of the
transactions contemplated by this Agreement 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) following the date upon which all conditions set
forth in Article VI hereof have been satisfied or waived, or at such other
date
as NeoStem and the HK Entity and the HK Shareholder may agree, provided that
the
conditions set forth in Article VI 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.”
Section
2.4 Closing
Events.
At
the
Closing, NeoStem, the HK
Entity
and the HK Shareholder shall execute, acknowledge, and deliver (or the HK Entity
shall cause the HK Entity, the Institute Co. or the WFOE to execute,
acknowledge, and deliver), any and all certificates, opinions, financial
statements, schedules, agreements, resolutions, rulings or other instruments
required by this Agreement to be so delivered at or prior to the Closing,
together with such other items as may be reasonably requested by the parties
hereto and their respective legal counsel in order to effectuate or evidence
the
transactions contemplated hereby.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF HK
ENTITY
The
HK
Entity, the Institute Co. and the HK Shareholder, jointly and severally, hereby
represent and warrant to NeoStem as follows:
Section
3.1 Corporate
Status.
(a) Each
Person in the Seller Group is an entity duly organized, validly existing and
in
good standing under the laws of the jurisdiction of its organization and has
the
corporate or limited liability company power and authority to conduct its
business and to own or lease and to operate its properties as and in the places
where such business is conducted and such properties are owned, leased or
operated. Each of the WFOE and its Subsidiaries is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its
organization and has the corporate or limited liability company power and
authority to conduct its business, enter into the contracts, including without
limitation the VIE Documents (as defined herein), and to own or lease and to
operate its properties as and in the places where such business is conducted
and
such properties are owned, leased or operated.
(b) The
HK
Entity, the Institute Co. and the HK Shareholder have delivered to NeoStem
complete and correct copies of the Organizational Documents of each Person
in
the Seller Group.
-8-
Section
3.2 Organizational
Matters.
(i) The
Institute has completed the formation of a new limited liability company
organized under the laws of the People's Republic of China and has completed
the
reformation process whereby the Institute shall have been converted into such
limited liability company. The Institute Co. has obtained all applicable
governmental consents and approvals in connection therewith.
(ii) The
HK
Entity has established the WFOE in accordance with the laws of the People's
Republic of China for the purposes of assuming management of the business
activities of the Institute. The HK Entity, the Institute Co. and the HK
Shareholder have obtained all applicable governmental consents and approvals
in
connection therewith.
(iii) The
following documents have been duly executed and delivered by the parties
thereto: (a) Power of Attorney, substantially in the form of Exhibit
B
attached
hereto (b) Exclusive Technical and Consulting Service Agreement, substantially
in the form of Exhibit
C
hereto,
(c) Loan Agreement, substantially in the form of Exhibit
D
hereto,
(d) Share Pledge Agreement, substantially in the form of Exhibit
E
attached
hereto, and (e) Exclusive Option Agreement, substantially in the form of
Exhibit
F
attached
hereto (collectively, the "VIE
Documents").
Section
3.3 Authorization.
(a) Each
of
the HK Entity, the WFOE, the Institute Co. and the shareholder of the Institute
Co. has full corporate power or power and authority to execute and deliver
this
Agreement, the Ancillary Agreements and the VIE Documents to which it shall
be a
party, to perform its obligations hereunder and thereunder and to consummate
the
transactions contemplated hereby and thereby. The execution and delivery of
this
Agreement, the Ancillary Agreements or the VIE Documents to which the HK Entity,
the WFOE, the Institute Co. and the shareholder of the Institute Co. shall
be a
party, the performance of the obligations of the HK Entity, the WFOE, the
Institute Co. and the shareholder of the Institute Co. hereunder and thereunder,
and the consummation by the HK Entity, the WFOE, the Institute Co. and the
shareholder of the Institute Co. of the transactions contemplated hereby and
thereby, have been duly authorized by all requisite corporate action on the
part
of the HK Entity, the WFOE, the Institute Co. and the shareholder of the
Institute Co.. Each of the HK Entity, and the Institute Co. has duly executed
this Agreement and each of the HK Entity, the WFOE, the Institute Co. and the
shareholder of the Institute Co, has duly executed the VIE Documents. On the
Closing Date, each of the HK Entity, and the Institute Co. will have duly
executed and delivered the Ancillary Agreements to which it shall be a party.
This Agreement constitutes, and each such VIE Document, Ancillary Agreement
or
other instrument when so executed and delivered will constitute the legal,
valid
and binding obligation of each of the HK Entity, the WFOE, the Institute Co.
and
the shareholder of the Institute Co., enforceable against it in accordance
with
its respective terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors’ rights generally, subject to the limitations
imposed by general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in
equity).
-9-
(b) The
HK
Shareholder has the capacity to execute and deliver this Agreement and the
other
Ancillary Agreements to which he or she is a party and to perform his or her
obligations hereunder and thereunder. No HK Shareholder is under any impairment
or other disability, legal, physical, mental or otherwise, that would preclude
or limit the ability of him or her to perform his or her obligations under
this
Agreement or the other Ancillary Agreements to which he or she is a party.
Each
of this Agreement and the other Ancillary Agreements to which the HK Shareholder
is a party constitutes a valid and binding obligation of such HK Shareholder
enforceable against him in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws
of
general applicability relating to or affecting creditors’ rights and to general
equity principles.
Section
3.4 Consents.
(a)
Except as disclosed on Schedule 3.4(a), no Government Approval or other consent
is required to be obtained or made the HK Entity, the Institute Co. or the
HK
Shareholder in connection with the execution and delivery of this Agreement
and
the Ancillary Agreements or the consummation of the transactions contemplated
hereby or thereby.
(b) Each
Person in the Seller Group and the HK Shareholder is in compliance with all
Governmental Approvals and other consents held by any member thereof. There
is
no Litigation pending or, to the knowledge of any Person in the Seller Group
or
any HK Shareholder, threatened, that would result in the revocation,
cancellation, suspension or modification or nonrenewal of any such Governmental
Approval or consent; no Person in the Seller Group nor any HK Shareholder has
been notified that any such Governmental Approval or consent will be modified,
suspended, canceled or cannot be renewed in the ordinary course of business;
and
there is no reasonable basis for any such revocation, cancellation, suspension,
modification or nonrenewal. The execution, delivery and performance of this
Agreement, the Ancillary Agreements and the VIE Documents and the consummation
of the transactions contemplated hereby and thereby do not and will not violate
any such Governmental Approval or consent, or result in any revocation,
cancellation, suspension, modification or nonrenewal thereof.
(c) Governmental
Filings.
Each
registration, report, statement, notice or other filing required to be filed
by
any Person in the Seller Group or the HK Shareholder with any Governmental
Authority under any applicable Law has been timely filed, and when filed
complied and continues to comply with applicable Law. As of their respective
dates, none of such registrations, reports, statements, notices or other filings
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
Section
3.5 Noncontravention.
The
execution, delivery and performance of this Agreement and, as applicable the
VIE
Documents and the Ancillary Agreements by the HK Entity, the WFOE, the HK
Shareholder, the Institute Co. and the shareholder of the Institute Co., and
the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with, contravene, result in a violation or breach of or
default under (with or without the giving of notice or the lapse of time or
both), create in any other Person a right of claim of termination, amendment,
or
require modification, acceleration or cancellation of, or result in the creation
of any Encumbrance (or any obligation to create any Encumbrance) upon any of
the
properties or assets of any Person in the Seller Group or the HK Shareholder
under, (a) any Law applicable to any Person in the Seller Group or the HK
Shareholder or any of their respective properties or assets, (b) any provision
of any of the Organizational Documents of any Person in the Seller Group or
(c)
any contract, or any other agreement or instrument to which any Person in the
Seller Group or the HK Shareholder is a party or by which any of their
respective properties or assets may be bound.
-10-
Section
3.6 Capitalization.
(a) The
authorized capital stock of the HK Entity consists of 10,000 shares of common
stock, par value HK$1.00 per share (the "HK
Common Stock"),
of
which 10,000 shares are issued and outstanding. All of the shares of HK Common
Stock issued and outstanding have been duly authorized and validly issued and
are fully paid and nonassessable. All the issued and outstanding shares of
HK
Common Stock are owned, beneficially and of record, by the BVI Entity, free
and
clear of any Encumbrances. There are no preemptive of similar rights on the
part
of any holders of any class of securities of the HK Entity. No subscriptions,
options, warrants, conversion or other rights, agreements, commitments,
arrangements or understandings of any kind obligating any Person to issue or
sell, or cause to be issued or sold, any shares of capital stock of any class
of
securities of the HK Entity, or any securities convertible into or exchangeable
for any such shares, are outstanding, and no authorization therefore has been
given. There are no outstanding contractual or other rights or obligations
to or
of Person to repurchase, redeem or otherwise acquire any outstanding shares
or
other equity interests of the HK Entity.
(c) The
authorized registered capital of the WFOE is U.S. $150,000 (the "WFOE
registered capital ").
The
WFOE registered capital has been duly authorized and paid according to PRC
laws
and nonassessable as more particularly set forth in Schedule 3.6(c). All shares
of WFOE are owned, beneficially and of record, by the HK Entity, free and clear
of any Encumbrances. There are no outstanding contractual or other rights or
obligations to or of Person to repurchase, redeem or otherwise acquire any
equity interests of the WFOE.
Section
3.7 Subsidiaries.
The HK
Entity is established by the HK Shareholder, and the WFOE is a direct
wholly-owned subsidiary of the HK Entity. Except the WFOE the HK entity does
not
owns, holds or has any properties or assets (whether tangible or intangible)
or
any liabilities or obligations of any nature whatsoever, other than liabilities
associated with its formation or continuation of its corporate existence (other
than liabilities relating to Tax).
Section
3.8 Delivery
of Financial Statements.
(a) The
Seller Group has delivered to NeoStem the unaudited balance sheets of the
Institute as of June 30, 2008 and December 31, 2007 and the related unaudited
statement of operations for the six months ended June 30, 2008 and the year
ended December 31, 2007.
(b)
All
such financial statements have been prepared in accordance with generally
accepted accounting principles in the Peoples Republic of China ("PRC GAAP").
The balance sheets are true and accurate and present fairly as of their
respective dates the financial condition of the Institute. As of the date of
such balance sheets, except as and to the extent reflected or reserved against
therein, the Institute had no liabilities or obligations (absolute or
contingent) which should be reflected in the balance sheets prepared in
accordance with PRC GAAP, and all assets reflected therein are properly reported
and present fairly the value of the assets of the Institute in accordance with
PRC GAAP. The statements of operations reflect fairly the information required
to be set forth therein PRC GAAP.
-11-
(c)
Each
Person in the Seller Group and the HK Shareholder has or will provide all
financial and other information to NeoStem as is necessary to include in
NeoStem's SEC Reports (as defined in Section 4.1), including without limitation,
any Proxy Statement and/or Registration Statement (each, as defined herein)
that
may be filed to, among other things, obtain shareholder approval for the
transactions contemplated by this Agreement.
(d)
Each
Person in the Seller Group and HK Shareholder has duly and punctually paid
all
Governmental fees and taxation which it has become liable to pay and has duly
allowed for all taxation reasonably foreseeable and is under no liability to
pay
any penalty or interest in connection with any claim for governmental fees
or
taxation and each Person in the Seller Group has made any and all proper
declarations and returns for taxation purposes and all information contained
in
such declarations and returns is true and complete and full provision or
reserves have been made in the financial statements for all Governmental fees
and taxation.
(d)
The
books and records, financial and otherwise, of the Institute Co. are in all
material aspects complete and correct and have been maintained in accordance
with good business and accounting practices.
(e)
All
of the Institute Co.'s assets are reflected on its financial statements, and
except as set forth in Schedule 3.8 (e) or the financial statements of the
Institute or the notes thereto, the Institute Co. has no material liabilities,
direct or indirect, matured or unmatured, contingent or otherwise.
Section
3.9 Absence
of Certain Changes.
Since
the date of the most recent audited balance sheet and until the Closing Date,
the Institute Co. has conducted and will conduct its business only in the
ordinary course consistent with prior practice and there has not been
any:
(a) change
in
the authorized or issued capital stock of any Person in the Seller Group; grant
of any stock option or right to purchase shares of capital stock of any Person
in the Seller Group; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption, retirement,
or
other acquisition by any Person in the Seller Group of any shares of any such
capital stock; or declaration or payment of any dividend or other distribution
or payment in respect of shares of such capital stock;
(b) amendment
to the Organizational Documents of any Person in the Seller Group;
(c) payment
or increase by any Person in the Seller Group of any bonuses, salaries, or
other
compensation to any stockholder, director, officer, or (except in the ordinary
course of business consistent with prior practice) employee or entry into any
employment, severance, or similar contract with any director, officer, or
employee;
(d) adoption
of, or increase in the payments to or benefits under, any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any employees of any Person in the Seller
Group;
-12-
(e) damage
to
or destruction or loss of any asset or property of any Person in the Seller
Group, whether or not covered by insurance, that individually or in the
aggregate could become or result in a Material Adverse Effect;
(f) sale
(other than sales of inventory in the ordinary course of business consistent
with prior practice), lease, or other disposition of any asset or property
or
mortgage, pledge, or imposition of any Encumbrance on any asset or property
with
a value to any Person in the Seller Group in excess of $10,000;
(g) cancellation
or waiver of any claims or rights with a value to any Person in the Seller
Group
in excess of $10,000;
(h) change
in
the accounting methods used by any Person in the Seller Group; or
(i) agreement,
whether oral or written, by any Person in the Seller Group to do any of the
foregoing.
Section
3.10 Litigation.
There
is no Litigation pending or, to the knowledge of any Person in the Seller Group
or the HK Shareholder, threatened by, against or affecting any Person in the
Seller Group, the HK Shareholder or any of their respective properties or assets
that, individually or in the aggregate, could materially impair the ability
of
any Person in the Seller Group to perform its respective obligations hereunder
or under any Ancillary Agreement, or have or result in a Material Adverse
Effect. There are no outstanding judgments, decrees, orders or injunctions
issued by any Governmental Authority against any Person in the Seller Group
or
the HK Shareholder.
Section
3.11 Assets.
Each
Person in the Seller Group and the HK Shareholder owns, or otherwise has full,
exclusive, sufficient and legally enforceable rights to use, all of the
properties and assets (real, personal or mixed, tangible or intangible), used
or
held for use in connection with, necessary for the conduct of, or otherwise
material to, the Business (the “Assets”).
Each
Person in the Seller Group has good, valid and marketable title to, or in the
case of leased property has good and valid leasehold interests in, each of
its
Assets, including but not limited to all such Assets reflected in the most
recent balance sheet or acquired since the date thereof (except as may be
disposed of in the ordinary course of business after the date hereof and in
accordance with this Agreement), in each case free and clear of any Encumbrance,
except Permitted Encumbrances. Each Person in the Seller Group has maintained
all tangible Assets in good repair, working order and operating condition
subject only to ordinary wear and tear, and all such tangible Assets are fully
adequate and suitable for the purposes for which they are presently being used.
Schedule 3.11(a) sets forth a list of all tangible Assets, including but not
limited to buildings, machinery, equipment and motor vehicles, and identifies
the location of such Assets and there are no Encumbrances on the
Assets.
Section
3.12 Real
Property.
(a)
Owned
Real Property.
No
Person in the Seller Group owns any Real Property.
-13-
(b) Leases.
Schedule 3.12(b) contains a complete and correct list of all Leases setting
forth the address, landlord and tenant for each Lease. Each Lease is legal,
valid, binding, in full force and effect and enforceable against each party
thereto. No Person in the Seller Group was, and no other party was, in default,
violation or breach in any respect under any Lease, and no event has occurred
and has been continuing that constitutes or, with notice or the passage of
time
or both, would constitute a default, violation or breach in any respect under
any Lease. Each Lease has granted the tenant under the Lease the exclusive
right
to use and occupy the premises and rights demised and intended to be demised
thereunder. Each Person in the Seller Group had good and valid title to the
leasehold estate under its respective Leases free and clear of any Encumbrances
other than Permitted Encumbrances, and each Person in the Seller Group enjoyed
peaceful and undisturbed possession under its respective Leases for the Leased
Real Property. With respect to any and all Leases between any Person in the
Seller Group and any of its respective Affiliates, each such Lease is on terms
and conditions as favorable to the relevant Person in the Seller Group as would
have been obtainable by it at the time in a comparable arm’s-length transaction
with a Person other than any of its Affiliates.
(c) Fee
and Leasehold Interests, etc.
The
Real Property constitutes all the fee and leasehold interests in real property
held by the Seller Group, and constituted all of the fee and leasehold interests
in real property used or held for use in connection with, necessary for the
conduct of, or otherwise material to, the Business.
(d) No
Proceedings.
There
are no proceedings in eminent domain or other similar proceedings pending or,
to
the knowledge of the Seller Group or the HK Shareholder, threatened affecting
any portion of the Real Property. There exist no writ, injunction, decree,
order
or judgment outstanding, nor any Litigation, pending or threatened, relating
to
the ownership, lease, use, occupancy or operation by any Person of any Real
Property.
(e) Current
Use.
The use
and operation of the Real Property in the conduct of the Business does not
violate in any material respect any instrument of record or agreement affecting
the Real Property. There was no violation of any covenant, condition,
restriction, easement or agreement or order of any Governmental Authority that
affects the Real Property or the ownership, operation, use or occupancy thereof.
No damage or destruction has occurred with respect to any of the Real Property
that, individually or in the aggregate, could reasonably be expected to have
or
result in a Material Adverse Effect.
(f) Real
Property Taxes.
Each
parcel included in the Real Property has been assessed for real estate tax
purposes as a wholly independent tax lot, separate from any adjoining land
or
improvements not constituting a part of that parcel.
Section
3.13 Contracts.
(a)
Schedule 3.13(a) contains a complete and correct list of all Contracts of each
Person in the Seller Group that (i) are material to the conduct and operations
of its business and properties, (ii) involve any of the officers, consultants,
directors, employees or shareholders of the Seller Group; or (iii) obligate
any
Person in the Seller Group to share, license or develop any product or
technology (except licenses granted in the ordinary course of business). For
the
purposes of this Section 3.13, “material” shall mean (i) reasonably likely to
result in consideration to any Person in the Seller Group, or imposing liability
or contingent liability on any Person in the Seller Group, in excess of $25,000
in each case or $250,000 in the aggregate in the current fiscal year, (ii)
containing exclusivity, non-competition, or similar clauses that impair,
restrict or impose conditions on any Person in the Seller Group’s right to offer
or sell products or services, (iii) not in the ordinary course of business
or
(iv) an agreement the termination of which would be reasonably likely to have
a
Material Adverse Effect.
-14-
(b) Enforceability.
All
contracts are legal, valid, binding, in full force and effect and enforceable
against each party thereto, except to the extent that any failure to be
enforceable, individually and in the aggregate, could not have or result in
a
Material Adverse Effect, or materially impair the ability of the Seller Group
to
perform its respective obligations hereunder. Except as set forth in Schedule
3.13(a), there did not exist under any contract any violation, breach or event
of default, or event or condition that, after notice or lapse of time or both,
would constitute a violation, breach or event of default thereunder, on the
part
of any Person in the Seller Group or any other Person. Except as set forth
in
Schedule 3.12(b), the enforceability of all contracts will not be affected
in
any manner by the execution, delivery or performance of this Agreement, and
no
contract contains any change in control or other terms or conditions that will
become applicable or inapplicable as a result of the consummation of the
transactions contemplated by this Agreement and the Ancillary
Agreements.
Section
3.14 Intellectual
Property.
(a)
Schedule 3.14(i) sets forth a complete and correct list of all Intellectual
Property that is owned by each Person in the Seller Group, which is material
to
the Business (the “Owned
Intellectual Property”).
The
Owned Intellectual Property constitutes all Intellectual Property used or held
for use in connection with, necessary for the conduct of, or otherwise material
to the Business, except for the Intellectual Property described on Schedule
3.14(ii). The Seller Group has the right to use all Intellectual Property
described on Schedule 3.14(ii). Schedule 3.14(iii) sets forth a complete and
correct list of all written or oral licenses and arrangements material to the
Business, (i) pursuant to which the use by any Person of Intellectual Property
is permitted by each Person in the Seller Group and (ii) pursuant to which
the
use by each Person in the Seller Group of Intellectual Property is permitted
by
any Person (collectively, the “Intellectual
Property Licenses”).
All
Intellectual Property Licenses are in full force and effect in accordance with
their terms, and are free and clear of any Encumbrances. Neither any Person
in
the Seller Group nor, to the knowledge of the Seller Group or the HK
Shareholder, any other party is in default under any Intellectual Property
License, and no such default is currently threatened. The conduct of the
Business does not infringe the rights of any third party in respect of any
Intellectual Property, except as set forth on Schedule 3.14(iv). To the
knowledge of the Seller Group or any BVI Shareholder, none of the Owned
Intellectual Property or the Intellectual Property Licenses is being infringed
by third parties. There is no claim or demand of any Person pertaining to,
or
any proceeding which is pending or, to the knowledge of the Seller Group or
any
BVI Shareholder, threatened, that challenges the rights of any Person in the
Seller Group in respect of any Owned Intellectual Property or Intellectual
Property License, or that claims that any default exists under any Intellectual
Property License. None of the Owned Intellectual Property or the Intellectual
Property Licenses is subject to any outstanding order, ruling, decree, judgment
or stipulation by or with any court, tribunal, arbitrator, or other Governmental
Authority. The Owned Intellectual Property has been duly registered with, filed
in or issued by, as the case may be, the State Intellectual Property Office
of
the People's Republic of China, the National Copyright Administration of the
People's Republic of China and the Trademark Office of State Administration
for
Industry & Commerce of the People's Republic of China, the United States
Patent and Trademark office and United States Copyright office or 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.
-15-
Section
3.15 Insurance.
Schedule 3.15 contains a complete and correct list and summary description
of
all insurance policies maintained (at present or at any time since January
1,
2004) by or on behalf of each Person in the Seller Group. A complete and correct
copy of all such policies together with all riders and amendments thereto has
been delivered to NeoStem. such policies are in full force and effect, and
all
premiums due thereon have been paid. Each Person in the Seller Group has
complied in all material respects with the terms and provisions of such
policies. The insurance coverage provided by such policies is adequate and
suitable for the Business, and is on such terms (including without limitation
as
to deductibles and self-insured retentions), covers such risks, contains such
deductibles and retentions, and is in such amounts, as the insurance customarily
carried by comparable companies of established reputation similarly situated
and
carrying on the same or similar business.
Section
3.16 Environmental
Matters.
(a)
Compliance
with Environmental Law.
The
Seller Group has complied and is in compliance in all material respects with
all
applicable Environmental Laws pertaining to any of the properties and assets
of
any Person in the Seller Group (including the Real Property) and the use and
ownership thereof, and to the operation of the Business. No material violation
by any Person in the Seller Group is being alleged of any applicable
Environmental Law relating to any of the properties and assets of the Seller
Group including (the Real Property) or the use or ownership thereof, or to
the
operation of the Business.
(b) Other
Environmental Matters.
(i)
Neither the Seller Group or any other Person (including any tenant or subtenant)
has caused or taken any action that will result in, nor is any Person in the
Seller Group subject to, any material liability or obligation on the part of
any
Person in the Seller Group or any of its Affiliates, relating to (x) the
environmental conditions on, under, or about the Real Property or other
properties or assets owned, leased, operated or used by any Person in the Seller
Group 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.
(ii) The
Seller 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 the Seller Group relating to (x)
the
environmental conditions on, under or about the Real Property or other
properties or assets owned, leased, operated or used by any Person in the Seller
Group or 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 any Person in the Seller Group or any other
Person on, under, about or from any of the Real Property, or otherwise in
connection with the use or operation of any of the properties and assets of
any
Person in the Seller Group, or the Business.
-16-
Section
3.17 Affiliate
Transactions.
(a)
Schedule 3.17(a) contains a complete and correct list of all agreements,
contracts, arrangements, understandings, transfers of assets or liabilities
or
other commitments or transactions, whether or not entered into in the ordinary
course of business, to or by which any Person in the Seller Group, on the one
hand, and any of its Affiliates, on the other hand, are or have been a party
or
otherwise bound or affected, and that (i) are material and currently pending
or
in effect or (ii) involve continuing liabilities and obligations that,
individually or in the aggregate, have been, are or will be material to any
Person in the Seller Group. Except as disclosed in Schedule 3.17(a), each
agreement, contract, arrangement, understanding, transfer of assets or
liabilities or other commitment or transaction set forth or required to be
set
forth in Schedule 3.17(a) was on terms and conditions as favorable to the
relevant Person in the Seller Group as would have been obtainable by it at
the
time in a comparable arm’s-length transaction with a Person other than any of
its Affiliates. For the purposes of this Section 3.17(a), “material” shall mean
reasonably likely to result in consideration to any Person in the Seller Group,
or imposing liability or contingent liability on any Person in the Seller Group,
in excess of five percent (5%) of net sales of Seller Group for the fiscal
year
ended December 31, 2007 or (ii) containing exclusivity, non-competition, or
similar clauses that impair, restrict or impose conditions on any Person in
the
Seller Group’s right to offer or sell products or services.
(b) Except
as
set forth in Schedule 3.17(b), no stockholder, officer, director or employee
of
any Person in the Seller Group, or any family member, relative or Affiliate
of
any such stockholder, officer, director or employee, (i) owns, directly or
indirectly, and whether on an individual, joint or other basis, more than five
percent (5%) interest in (x) any property or asset, real or personal, tangible
or intangible, used in or held for use in connection with or pertaining to
the
Business, or (y) any Person, that is a supplier, customer or competitor of
any
Person in the Seller Group, (ii) serves as an officer, director or employee
of
any Person that is a supplier, customer or competitor of any Person in the
Seller Group or (iii) has received any loans from or is otherwise a debtor
of,
or made any loans to or is otherwise a creditor of, any Person in the Seller
Group in an amount in excess of five percent (5%) of net sales of the Seller
Group for the fiscal year ended December 31, 2007.
Section
3.18 Employees,
Labor matters, etc.
Except
as set forth on Schedule 3.18, no Person in the Seller Group 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 any Person in the Seller Group. 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 any Person in the Seller
Group. Except as set forth on Schedule 3.18, 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 any Person in the Seller Group. Each Person in the Seller Group
has
complied with all applicable Laws pertaining to the employment or termination
of
employment of their respective employees, including, without limitation, all
such 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 any Person in the Seller Group or NeoStem or any of its
Affiliates, or have or result in a Material Adverse Effect.
-17-
Section
3.19 Benefit
Plans and Related Matters.
(a)
Except as set forth on Schedule 3.19(a), with respect to any employee or former
employee of any Person in the Seller Group, no Person in the Seller Group,
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 any Person in the Seller Group. Each plan, program
and arrangement set forth on Schedule 3.19(a) is herein referred to as an
“Employee
Benefit Plan”.
The
term “affiliated company” means any organization that would be aggregated with
the any Person in the Seller Group under Section 414(b), (c), (m) or (o) of
the
Code.
(b) There
is
no pending or threatened legal action, claim, proceeding or investigation
against or involving any 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.
(c) None
of
the Persons in the Seller Group 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 such
Person in the Seller Group.
Section
3.20 Taxes.
(a)
Except as set forth on Schedule 3.20(a), (i) all Returns required to be filed
by, or with respect to any activities or assets of, each Person in the Seller
Group 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) no Person in the Seller Group is currently the beneficiary of any
extension of time within which to file any Return.
(b) Except
as
set forth on Schedule 3.20(b), (i) all Taxes that are or may become payable
by
any Person in the Seller Group 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 Person in the Seller Group has duly and timely withheld all Taxes
required to be withheld in connection with the business or assets of such
member, 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.
(c) Except
as
set forth on Schedule 3.20(c), there has been no claim or issue (other than
a
claim or issue that has been finally settled) concerning any liability for
Taxes
of any Person in the Seller Group asserted, raised or threatened by any taxing
authority and, to the knowledge the Seller Group or any BVI Shareholder, no
circumstances exist to form the basis for such a claim or issue.
(d) Schedule
3.20(d) lists all Tax Returns that have been filed with respect to any Person
in
the Seller Group for taxable periods ended on or after January 1, 2002 and
that
have not yet been audited or are currently the subject of
audit.
-18-
(e) Except
as
set forth on Schedule 3.20(e), no Person in the Seller Group 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.
(f) Except
as
set forth in Schedule 3.20(g), no Person in the Seller Group (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 Tax Return.
Section
3.21 Accounts
Receivable.
Each
Person in the Seller Group has delivered or caused to be delivered to NeoStem
a
complete and accurate aging of all accounts receivable of such Person in the
Seller Group as of the end of each monthly period since January 1, 2006. Except
as set forth in Schedule 3.21, no account receivable any Person in the Seller
Group reflected on the most recent balance sheet and no account receivable
arising after the date of such balance sheet and reflected on the books of
the
Seller Group is uncollectible or subject to counterclaim or offset, except
to
the extent reserved against thereon. All accounts receivable reflected on such
balance sheet or on such books have been generated in the ordinary course of
business and reflect a bona fide obligation for the payment of goods or services
provided by any Person in the Seller Group. Except as set forth in Schedule
3.21, all discounts to customers of each Person in the Seller Group are as
shown
on its books and records and in no event exceed one percent of receivables
to
which they relate.
Section
3.22 Customers.
Schedule 3.22 sets forth for each of the years ended from December 31, 2005
to
December 31, 2007 and for the interim periods ended March 31, 2008 and June
30,
2008 (a) the names and addresses of the ten (10) largest customers of the Seller
Group based on the aggregate value of services ordered from the Seller by such
customers during each such period and (b) the amount for which each such
customer was invoiced during each such period. No Person in the Seller Group
has
received any notice or has any reason to believe that any material customer
of
Seller (i) has ceased, or will cease, to use the services of Seller, (ii) has
materially reduced or will materially reduce, the use of services of Seller
or
(iii) has sought, or is seeking, to materially reduce the price it will pay
for
services of Seller, which cessations and reductions, either individually or
in
the aggregate, could have or result in a Material Adverse Effect.
Section
3.23 Bank
Accounts.
Schedule 3.23 sets forth a complete and correct list containing the names set
forth of each bank in which any Person in the Seller Group has an account or
safe deposit or lock box, the account or box number, as the case may be, and
the
name of every person authorized to draw thereon or having access
thereto.
Section
3.24 Disclosure.
This
Agreement and each certificate or other instrument or document furnished by
or
on behalf of the Seller Group to NeoStem or any agent or representative of
NeoStem pursuant hereto, taken as a whole, do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated herein
or therein or necessary to make the statements contained herein or therein
in
light of the circumstances under which they were made, not
misleading.
-19-
Section
3.25 FCPA.
None of
the Persons in the Seller Group have conducted or authorized any of the
employees, officers, agents, directors, affiliates, or representatives of any
Person in the Seller Group to conduct any activities that may violate any
provisions of the FCPA.
Section
3.26 Compliance
with Applicable Laws.
(a)
Except as disclosed on Schedule 3.26, (a) each Person in the Seller Group 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 Organizational Documents, or (iii) any contract, or any other
agreement or instrument to which it is party or by which it or any of its
properties or assets is bound of affected, 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 Material
Adverse Effect, or materially impair the ability of any Person in the Seller
Group to perform its respective obligations hereunder and under the Ancillary
Agreements, and (b) no Person in the Seller Group has received any notice or
has
knowledge of any claim alleging any such conflict, violation, breach or
default.
Section
3.27 Licenses
and Permits.
Each
Person in the Seller Group has such certificates, permits, licenses, franchises,
consents, approvals, orders, authorizations and clearances from appropriate
governmental agencies and bodies (the “Seller
Group Licenses”)
as are
necessary to own, lease or operate its properties and to conduct its business
as
presently conducted and all such Seller Group Licenses are valid and in full
force and effect, other than any failure to have any such Seller Group License
or any failure of any such Seller Group 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 Material Adverse Effect. Each Person in the Seller Group is
and, within the period of all applicable statutes of limitations, has been
in
compliance with its obligations under such Seller Group Licenses and no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination of such Seller Group Licenses. Each Person in the
Seller Group has no knowledge of any facts or circumstances that could
reasonably be expected to result in an inability of such Person or any of its
Subsidiaries to renew any material Seller Group License. Subject to making
all
filings, notifications and disclosures and receipt of all permits,
authorizations, consents and approvals referred to in Schedule 3.4(a), neither
the execution nor delivery by any Person of the Seller Group of this Agreement
nor the consummation of any of the transactions contemplated herein will result
in any revocation or termination of any material Seller Group
License.
Section
3.28 Brokers
and Intermediaries.
No
Person in the Seller Group has employed any broker, finder or intermediary
in
connection with the transactions contemplated by this Agreement which would
be
entitled to a broker’s, finder’s or similar fee or commission in connection
therewith or upon the consummation thereof.
Section
3.29 Disclosure.
This
Agreement and each Ancillary Agreement, and each certificate or other instrument
or document to which any Person in the Seller Group is a party and which has
furnished by or on behalf of any Person in the Seller Group to NeoStem or any
agent or representative of NeoStem pursuant hereto, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated herein or therein or necessary to make the statements
contained herein or therein in light of the circumstances under which they
were
made, not misleading.
-20-
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF NEOSTEM
NeoStem
hereby represents and warrants to the Seller Group as follows:
Section
4.1 Corporate
Status.
NeoStem
is a corporation duly incorporated, validly existing and in good standing under
the laws of Delaware. NeoStem has the corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the
periodic reports ("SEC
Reports")
that
NeoStem files with SEC.
Section
4.2 Authorization.
NeoStem
has full corporate power and authority to execute and deliver this Agreement
and
the Ancillary Agreements to which it shall be a party, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements to which NeoStem shall be a party, the performance
of its respective obligations hereunder and thereunder, and the consummation
by
NeoStem of the transactions contemplated hereby and thereby, have been duly
authorized by all requisite corporate action on the part of NeoStem. NeoStem
has
duly executed this Agreement and on the Closing Date will have duly executed
and
delivered the Ancillary Agreements to which it shall be a party. This Agreement
constitutes, and each such Ancillary Agreement or other instrument when so
executed and delivered will constitute the legal, valid and binding obligation
of NeoStem enforceable against NeoStem in accordance with its respective terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors’ rights generally, subject to the limitations imposed by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
Section
4.3 Consents.
Except
for actions to be taken in connection with (a) the filing and effectiveness
of
the Registration Statement, (b) filings required pursuant to any state
securities or “blue sky” laws and (c) filings and other matters relating to the
listing or quoting on a Stock Exchange of the shares of NeoStem Common Stock
required to be issued pursuant to this Agreement, no Government Approval or
other consent is required to be obtained or made by NeoStem in connection with
the execution and delivery of this Agreement and the Ancillary Agreements to
which it shall be a party or the consummation of the transactions contemplated
hereby or thereby, except for consents the failure of which to be made or
obtained individually and in the aggregate, could not have or result in a
Material Adverse Effect, or materially impair the ability of NeoStem to perform
its respective obligations hereunder and under such Ancillary
Agreements.
-21-
Section
4.4 Noncontravention.
The
execution, delivery and performance by NeoStem, as the case may be, of this
Agreement and the Ancillary Agreements to which the it shall be a party, and
the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with, contravene, result in a violation or breach of or
default under (with or without the giving of notice or the lapse of time, or
both), create in any other Person a right or claim of termination, amendment,
modification, acceleration or cancellation of, or result in or require the
creation of any Encumbrance (or any obligation to create any Encumbrance) on
any
of the properties or assets of NeoStem under (a) subject to making all filings,
notifications and disclosures and receipt of all permits, authorizations,
consents and approvals referred to in clauses “a” through “c” of Section 4.3,
any Law applicable to NeoStem or any of its respective properties or assets,
(b)
subject to obtaining the approval of the Exchange by holders of the NeoStem
Common Stock and the NeoStem Preferred Stock, any provision of any of the
Organizational Documents of NeoStem, or (c) any contract, agreement or other
instrument to which NeoStem is a party or by which its properties or assets
may
be bound, except, in the case of clause (c), for violations and defaults that,
individually and in the aggregate, would not materially impair the ability
of
NeoStem to perform its obligations hereunder and under the Ancillary
Agreements.
Section
4.5 Brokers
and Intermediaries.
NeoStem
has not employed any broker, finder, advisor or intermediary in connection
with
the transactions contemplated by this Agreement which would be entitled to
a
broker’s, finder’s or similar fee or commission in connection therewith or upon
the consummation thereof.
ARTICLE
V
COVENANTS
Section
5.1 Conduct
of Business.
The
Seller Group shall continue to carry on its business in substantially the same
manner as it has heretofore. No Person in the Seller Group or the HK Shareholder
will take any action which would have a Material Adverse Effect on the Business
or the transactions contemplated by this Agreement, except as expressly
consented to by NeoStem in writing.
(a) Except
as
expressly consented to by NeoStem in writing or otherwise expressly contemplated
by this Agreement, from the date of this Agreement to the Closing Date, the
Seller Group shall:
(1) not
cause
or permit any amendment, supplement, waiver or modification to or of any of
Organizational Documents of the HK Entity or any Person in the Seller
Group;
(2) not
declare dividends on, or redeem or repurchase any shares of, any class of
capital stock or issue any capital stock of the HK Entity or any Person in
the
Seller Group.
(3) not
increase any obligations of the HK Entity or any Person in the Seller Group
with
respect to Indebtedness, repay any loans or other amounts outstanding, make
capital expenditures in excess of $50,000 in the aggregate, pay any bonuses
or
advances against salaries except as set forth on Schedule 5.1, prepay any
accounts payable, delay payment of any trade payables other than in the ordinary
course of business, or make any other cash payments other than in the ordinary
course of business;
(4) not
sell,
transfer, assign, lease, license, mortgage, pledge, hypothecate, grant any
security interest in, or otherwise subject to any other Encumbrance, any of
the
Assets (including, without limitation, all of its Intellectual Property), except
for sales in the ordinary course of business;
-22-
(5) not
enter
into or assume any contract, or enter into or permit any amendment, supplement,
waiver or other modification in respect thereof, except for such contracts
and
amendments, supplements, waivers and modifications thereof that, individually
and in the aggregate, are not material to any Person in the Seller Group and
that are entered into, assumed or permitted in the ordinary course of business
and following prior notice to and consultation with NeoStem;
(6) not
compromise, settle, grant any waiver or release relating to or otherwise adjust
any Litigation, except in the ordinary course of business of the Seller Group,
and following prior notice to and consultation with NeoStem;
(7) not
merge
or consolidate with, or agree to merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire, any business, business
organization or division thereof, or any other Person, except in the ordinary
course of business of the Seller Group and following prior notice to and
consultation with NeoStem;
(8) not
organize any new subsidiary or acquire any capital stock of any Person or any
equity or ownership interest in any business, except in the ordinary course
of
business of the Seller Group and following prior notice to and consultation
with
NeoStem;
(9) not
take
any action or omit to take any action, which action or omission would result
in
a breach of any of the representations and warranties set forth in Article
III;
Section
5.2 Access
and Information.
The
Persons in the Seller Group and the HK Shareholder will each afford to the
officers and authorized representatives of NeoStem full access to the
properties, books and records of any Person in the Seller Group, as the case
may
be, in order that NeoStem may have a full opportunity to make such reasonable
investigation as it shall desire to make of the affairs of the Persons in the
Seller Group, and each will furnish NeoStem with such additional financial
and
operating data and other information as to the business and properties of the
Persons in the Seller Group, as the case may be, as the other shall from time
to
time reasonably request.
Section
5.3 Confidentiality.
The
parties hereto hereby agree to treat all of the information required to be
disclosed or exchanged in connection with this Agreement, the Ancillary
Agreements, the VIE Documents and any other confidential information a party
hereto receives from another party hereto as confidential, to not use any of
such information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, to return to such other
party
all tangible embodiments (and all copies) of such information which are in
its
possession. Other than required under the relevant disclosure rules of under
the
securities laws of the united states, the parties hereto may disclose on a
confidential basis the transactions contemplated hereby and any information
which such party may obtain from another party hereto to their respective
Representatives to the extent necessary to obtain their services in connection
with the transactions contemplated hereby. The obligation to maintain the
confidentiality of information shall not apply to any information disclosed
or
disclosures made in response to a valid subpoena or similar process or to an
order of a court of competent jurisdiction, provided that the disclosing party
shall have used its best efforts to notify the other party hereto to whom the
confidential information belongs in time to afford such party an opportunity
to
contest such process or order.
-23-
Section
5.4 Further
Actions.
(a)
Each party hereto shall use best efforts to take or cause to be taken all
actions, and to do or cause to be done all other things, necessary, proper
or
advisable in order for such party to fulfill all closing conditions hereunder
and perform its obligations in respect of this Agreement and the Ancillary
Agreements to which it is a party, or otherwise to consummate and make effective
the transactions contemplated hereby and thereby.
(b) Each
party hereto shall, as promptly as practicable, (i) make, or cause to be made,
all filings and submissions required under any Law applicable to such party,
and
give such reasonable undertakings as may be required in connection therewith,
and (ii) use best efforts to obtain or make, or cause to be obtained or made,
all Governmental Approvals and consents necessary to be obtained or made by
such
party, in each case in connection with this Agreement or the Ancillary
Agreements, the sale and transfer of the HK Entity Shares pursuant hereto,
or
the consummation of the other transactions contemplated hereby or thereby.
Such
party shall coordinate and cooperate with all other parties hereto in exchanging
such information and supplying such reasonable assistance as may be reasonably
requested by such other parties in connection with the filings and other actions
contemplated by this Section 5.4.
(c) At
all
times prior to the Closing Date, each party shall promptly notify the other
in
writing of any fact, condition, event or occurrence that could reasonably be
expected to result in the failure of any of the closing conditions contained
herein to be satisfied, promptly upon becoming aware of the same.
If
any
third party whose consent is required to transfer the benefit of any contract
or
Governmental Approval to NeoStem (the “Rights”)
does
not consent to such transfer, the Seller Group shall, at the request of NeoStem
and to the extent permitted by Law, enforce, use, carry out and comply with
such
Right against such Person as agent of NeoStem, at NeoStem’s cost and expense and
for NeoStem’s exclusive benefit.
Section
5.5 Further
Assurances.
Following the Closing Date, each Person in the Seller Group shall from time
to
time, execute and deliver such additional instruments, documents, conveyances
or
assurances and take such other actions as shall be necessary, or otherwise
reasonably be requested by NeoStem, to confirm and assure the rights and
obligations provided for in this Agreement and the Ancillary Agreements and
render effective the consummation of the transactions contemplated hereby and
thereby, or otherwise to carry out the intent and purposes of this Agreement
(which include the transfer to NeoStem of the ownership and intended related
benefits of the business of the Institute).
Section
5.6 FCPA.
None of
the Persons in the Seller Group will conduct or authorize any employees,
officers, agents, directors, affiliates, or representatives of the HK Entity
to
conduct any activities that may violate any provisions of the
FCPA.
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Section
5.7 Registration
Statement/Proxy Statement.
(a) Each
Person in the Seller Group shall promptly furnish NeoStem with all information
concerning it as may be required for inclusion in the registration statement
on
Form S-4 (as amended, supplemented or modified, the "Registration
Statement")
to be
filed with the SEC by NeoStem under the Securities Act, including the prospectus
relating to NeoStem Common Stock to be issued in the Exchange (as amended,
supplemented or modified, the “Prospectus”)
and
the proxy statement and form of proxies relating to, among other things, the
vote of the stockholders of NeoStem with respect to the Exchange (as amended,
supplemented or modified, the “Proxy
Statement").
Each
Person in the Seller Group shall cooperate with NeoStem in the preparation
of
the Registration Statement in a timely fashion and shall use all reasonable
efforts to assist NeoStem in having the Registration Statement declared
effective by the SEC as promptly as practicable consistent with the timing
for
the NeoStem Annual Meeting (as defined below) as determined by NeoStem. Each
Person in the Seller Group hereby represents and warrants to NeoStem that the
information provided by any Person in the Seller Group for inclusion in at
the
time the Registration Statement becomes effective or, in the case of the Proxy
Statement, at the date of mailing and at the date of the annual meeting of
stockholders of NeoStem to which such Proxy Statement relates (the "NeoStem
Annual Meeting"),
will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to the Closing, any Person in the Seller
Group
obtains knowledge of any information pertaining to Seller Group that would
require any amendment or supplement to the Registration Statement or the Proxy
Statement, such Person shall so advise NeoStem and shall promptly furnish
NeoStem with all information as shall be required for such amendment or
supplement.
(b) The
Seller Group shall provide to NeoStem (a) if the filing with the SEC of the
Registration Statement and/or Proxy Statement occurs prior to November 14,
2008,
(i) audited consolidated balance sheets of each the HK Entity and each other
Person in the Seller Group as may be required by the SEC or otherwise under
applicable Law, and its respective Subsidiaries as of December 31, 2007 and
December 31, 2006, (ii) audited consolidated statements of income, cash flows
and changes in shareholders’ equity of each such Person and its Subsidiaries for
the years ended December 31, 2007 and December 31, 2006, and (iii) an
unqualified report with respect to such audited financial statements by Moore
Stephens, which report shall be in form and substance reasonably satisfactory
to
NeoStem, and (b) if the filing with the SEC of the Registration Statement and/or
Proxy Statement Closing occurs on or after November 14, 2008, in addition to
the
items referred to in clause “a” of this Section 5.7, (i) unaudited consolidated
balance sheets of each of Person in the Seller Group 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
Person in the Seller Group and its respective Subsidiaries for the three and
nine months ended September 30, 2008 and 2007, and (iii) all other financial
statements of each Person of the Seller Group required for the Registration
Statement and/or Proxy Statement to be filed by NeoStem (collectively, the
"Seller
Group Financial Statements").
Such
financial statements shall be prepared in accordance with generally accepted
accounting principles in the United States ("U.S.
GAAP"),
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
rules and regulations.
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(c) Prior
to
the filing by NeoStem of the Registration Statement and/or Proxy Statement,
the
Seller Group shall cause Moore Stephens 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 Registration Statement and/or Proxy Statement delivered pursuant
to Section 5.7(b).
(d) Upon
NeoStem’s request, contemporaneous with the delivery of the consolidated
financial statements described in clause “a” of Section 5.7, the Seller Group
shall cause Moore Stephens 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
5.7(b).
(e) Prior
to
the filing by NeoStem of the Registration Statement and/or Proxy Statement,
each
Person in the Seller Group shall cooperate with NeoStem in providing to NeoStem
such consolidated financial statements, financial data, accountants’ reports and
legal opinions as NeoStem shall reasonably request with respect to the filing
with the SEC by NeoStem of the Registration Statement and/or Proxy
Statement.
Section
5.8 Financial
Statements for a Current Report on Form 8-K.
(a) Prior
to
the Closing, the Seller Group shall provide to NeoStem (a) the Seller Group
Financial Statements, and (b) if the Closing occurs on or after November 14,
2009, in addition to the items referred to in clause “a” of this Section 5.8,
(i) unaudited consolidated balance sheets of each of Person in the Seller Group
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 Person in the Seller Group and its respective
Subsidiaries for the three and nine months ended September 30, 2008 and 2007,
and (iii) all other financial statements of each Person of the Seller Group
required for any SEC filing to be filed by NeoStem. Such financial statements
shall be prepared in accordance with U.S. GAAP, 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.
(b) At
the
Closing, the Seller Group shall cause Moore Stephens 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
5.8(a).
(c) Upon
NeoStem’s request, contemporaneous with the delivery of the consolidated
financial statements described in clause “a” of Section 5.8, the Seller Group
shall cause Moore Stephens 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
5.8(a).
(d) Prior
to
the Closing, each Person in the Seller Group shall 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.
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Section
5.9. Assistance
to Institute Co.
During
the period from and after the Closing Date until the tenth anniversary of the
Closing Date, (i) NeoStem shall cause its U.S. operations to assist the
Institute Co. in its reasonable best efforts to secure patients from the United
States who seek treatment overseas, with a goal of securing a minimum of 200
such patients per year; and (ii) NeoStem shall assist the Institute Co. in
its
reasonable best efforts to expand the Institute Co.’s network and be a leader in
regenerative medicine related technology, with the intention of reviewing
opportunities to use NeoStem’s VSEL technologies in furtherance of such effort.
Section
5.10. Auditor
Fees.
The
cost of auditor fees for the audit of the Seller Group’s financial statements in
connection with the transactions contemplated hereby incurred by the Seller
Group shall be reimbursed by NeoStem as part of the closing costs of such
transactions at the Closing.
ARTICLE
VI
CONDITIONS
TO CLOSING
Section
6.1 Conditions
to the Obligations of Each Party.
The
obligations of each Person in the Seller Group and NeoStem to consummate the
Exchange and the other transactions contemplated by this Agreement shall be
subject to the satisfaction (or waiver by each party, to the extent permitted
by
law) of the following conditions:
(a) (i)
This
Agreement, the Exchange and the transactions contemplated hereby shall have
been
approved and adopted by the HK Shareholder and the HK Entity in the manner
required by any applicable Law, and (ii) the issuance of the Exchange Shares
shall have been approved by NeoStem’s stockholders and NeoStem in the manner
required by any applicable Law and the applicable rules of the American Stock
Exchange, Inc., The New York Stock Exchange, Inc. or The NASDAQ Stock Market
on
which the NeoStem Common Stock is quoted or listed (each, a "Stock
Exchange").
(b) 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 (as defined herein) after the Closing
and
after giving effect to consummation of the transactions contemplated by this
Agreement. For such purpose, a “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.
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(c) 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.
(d) The
Exchange Shares required to be issued pursuant to the Exchange shall have been
approved for listing on the Stock Exchange on which the NeoStem Common Stock
is
listed or quoted, subject to official notice of issuance.
(e) Each
of
Robin Smith and Wang Taihua shall have entered into employment agreements with
NeoStem, effective as of the Closing Date, in substantially form and substance
reasonably acceptable to NeoStem and each of them of (each, an “Employment
Agreement”).
(f) This
Agreement, the Ancillary Agreements and the VIE Documents, if and to the extent
required, shall have been delivered to the relevant governmental organizations
for inspection and approval and all such approvals shall have been obtained.
(g) The
VIE
Documents shall be satisfactory as to form and substance to NeoStem, and copies
of the VIE Documents shall have been provided to NeoStem.
Section
6.2 Conditions
to NeoStem’s Obligations. The
obligations of NeoStem 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:
(a) The
representations and warranties of each Person in the Seller Group 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 Material Adverse Effect set
forth therein) does not have, and is not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect, provided that the
representations and warranties set forth in Sections 3.1, 3.2, 3.3 and 3.6
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).
(b) Each
Person in the Seller Group 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.
(c) Since
the
date of this Agreement, there shall not have occurred any act, event or omission
having or reasonably likely to have a Material Adverse Effect.
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(d) Each
Person in the Seller Group shall have obtained all authorizations, consents,
waivers, approvals or other actions described in Schedule 3.4 in connection
with
the execution, delivery and performance of this Agreement by each Person in
the
Seller Group (the “Seller
Group Approvals”)
and
the Seller Group 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 Sections 4.3 and 4.4 (the “NeoStem
Approvals”)
and
the NeoStem Approvals shall be in full force and effect as of the Closing
Date.
(e) 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 Closing, 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 Exchange or any of the other transactions contemplated
by this Agreement, (ii) seeks to prohibit or limit the ownership or operation
by
NeoStem, any Person in the Seller Group or any of their respective subsidiaries
of, or to compel NeoStem, any Person in the Seller Group or any of their
respective subsidiaries to dispose of or hold separate, any material portion
of
the business or assets of NeoStem, any Person in the Seller Group or any of
their respective subsidiaries, as a result of the Exchange 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 HK Entity, including the right
to vote such capital stock of the HK Entity on all matters properly presented
to
the HK Shareholder, 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 HK Entity
or
the WFOE.
(f) Prior
to
or at the Closing, the HK Entity shall have delivered to NeoStem the
following:
(1) a
certificate of the Chairman of each of the HK Entity, the Institute Co. and
an
appropriate officer of the WFOE (executed on behalf of each of the HK Entity,
the Institute Co. and the WFOE, respectively), and the HK Shareholder, 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(a), (b) and (c) have been satisfied;
(2) a
certificate of the Secretary or Assistant Secretary of the HK Entity and the
Institute Co., dated the Closing Date, as to the incumbency of any officer
of
such entity executing this Agreement or any document related hereto;
and
(3) (a)
a
copy of (1) the certificate of formation, as amended, of the HK Entity,
certified by the Registrar of Company in Hong Kong and dated not earlier than
fifteen days prior to the Closing, (2) the by-laws (or the Hong Kong equivalent
thereof), as amended, of the HK Entity and (3) the resolutions of the HK
Entity’s Board of Directors authorizing the execution, delivery and consummation
of this Agreement and the transactions contemplated hereby as of the Closing
Date and (b) comparable documentation for each of the Institute Co. and the
WFOE.
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(g) NeoStem
shall have received an opinion of each of People's Republic of China counsel
to
the Seller Group and the Hong Kong counsel to the Seller Group, in the form
and
substance reasonably satisfactory to NeoStem, including without limitation,
with
respect to the Exchange, the VIE Documents, the regulatory status of each entity
within the Seller Group and the disclosure in the Registration Statement. Such
counsel shall also provide NeoStem with appropriate opinion letters prior to
the
filing of the Registration Statement and/or Proxy Statement and at the
Closing.
(h) NeoStem
shall have received the opinion of vFinance to the effect that as of the date
hereof the terms of the exchange are fair to NeoStem’s stockholders from a
financial point of view.
(i) All
directors of the Seller Group whose resignations shall have been requested
by
NeoStem not less than five days prior to the Closing Date shall have submitted
their resignations or been removed from office effective as of the
Closing.
(j) At
the
Closing, the HK Shareholder shall have delivered all of the certificates
representing the HK Shares to NeoStem as provided in Section 2.1.
(k) The
Ancillary Agreements, including, without limitation the Escrow Agreement, shall
have been executed and delivered by each of the HK Entity, the Institute Co.
and
the HK Shareholder party thereto and in the case of the Escrow Agreement, the
Escrow Agent, and shall be satisfactory in form and substance to
NeoStem.
(l) With
respect to any periods following the execution of this Agreement, the HK Entity,
the Institute Co. and the HK Shareholder shall have delivered to NeoStem all
financial information, financial statements for the Chinese business operations
which have been prepared in accordance with U.S. GAAP and audited by Moore
Stephens and other information as required to be included in NeoStem's SEC
Reports. The HK Entity, the Institute Co, and the HK Shareholder shall cause
Moore Stephens to deliver to NeoStem an audit report with respect to the
aforementioned financial statements and 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
aforementioned audit report.
(m) All
corporate, partnership and other proceedings of each Person in the Seller Group
in connection with the transactions contemplated by this Agreement and the
Ancillary Agreements, the VIE Documents and all documents and instruments
incident thereto, shall be reasonably satisfactory in substance and form to
NeoStem and its counsel, and NeoStem and its counsel shall have received all
such documents and instruments, or copies thereof, certified if requested,
as
may be reasonably requested.
(n) The
result of due diligence, including but not limited to, the legal due diligence,
financial due diligence and business due diligence, shall be reasonably
satisfactory to NeoStem.
(o) NeoStem
shall have received evidence reasonably satisfactory to it from each relevant
PRC Governmental Authority that HK Entity and the Institute Co. are in
compliance in all material respects with all applicable Tax Laws and
Environmental Laws.
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(p) NeoStem
shall have received a non-competition agreement executed by each of Dr. Wang
Taihua and Shandong New Medicine Research Institute of Integrated Traditional
and Western Medicine Limited Liability Company, a China limited liability
company, agreement in form and substance reasonably satisfactory to
NeoStem.
(q) NeoStem
shall have received the names and biographies of least three individuals,
satisfactory to NeoStem in its sole discretion, who have expressed a sincere
desire and are able to serve on NeoStem's Board of Directors; provided,
however,
that
NeoStem's determination that any of such individuals are satisfactory to it
shall not in any way obligate NeoStem to cause any of such individuals to be
designated, appointed or otherwise elected to serve on NeoStem's Board of
Directors.
(r) NeoStem
shall have received evidence satisfactory to it that any and all of the
properties and assets (real, personal or mixed, tangible or intangible),
including without limitation, any and all equipment, necessary or appropriate
to
use or to hold for use in the Business are used or held for use by the Institute
Co., free and clear of any and all Encumbrances, and that such assets have
a net
book value of at least RMB 4,267,265 as of the Closing Date.
(s) The
WOFE
registered capital in the amount of U.S. $150,000 shall have been duly
authorized, fully paid in a timely manner and non-assessable and the loan in
the
amount of U.S. $150,000 shall have been made in accordance with the Loan
Agreement, and NeoStem shall have received evidence thereof satisfactory to
NeoStem and its counsel.
(t) Dr.
Wang
shall have entered into a consultant or employment agreement acceptable to
NeoStem, in its reasonable discretion.
Section
6.3 Conditions
to Obligations of the HK Entity, the Institute Co. and the HK
Shareholder.
The
obligations of the HK Entity, the Institute Co. and the HK Shareholder to
consummate the transactions contemplated by this Agreement shall be subject
to
the fulfillment (or waiver by the HK Entity, the Institute Co. and the HK
Shareholder) at or prior to the Closing of each of the following
conditions:
(a) The
representations and warranties of NeoStem 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 and 4.2 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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(b) NeoStem
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 under this Agreement at or prior
to
the Closing.
(c) 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.
(d) Prior
to
or at the Closing, NeoStem shall have delivered to CBH the
following:
(1) a
certificate of the President or a Vice President 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(a), (b) and (c) have been
satisfied;
(2) a
certificate of the Secretary or Assistant Secretary of NeoStem, dated the
Closing Date, as to the incumbency of any officer of NeoStem executing this
Agreement or any document related hereto; and
(3) a
copy of
(i) 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, (ii) 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, (iii) the by-laws, as amended, of
NeoStem, certified by the Secretary or Assistant Secretary of NeoStem as of
the
Closing Date, and (iv) 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.
(e) 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.
(f) At
the
Closing, NeoStem shall have delivered the certificates representing the Exchange
Shares in accordance with Section 2.1.
(g) The
Ancillary Agreements, including without limitation, the Escrow Agreement to
which NeoStem shall be a party shall have been executed and delivered by NeoStem
and in the case of the Escrow Agreement, the Escrow Agent, and shall be
satisfactory in form and substance to the HK Entity, the Institute Co. and
the
HK Shareholder in their reasonable judgment; and NeoStem shall have deposited
with the Escrow Agent the Escrow Certificates representing the NeoStem Common
Stock under the Escrow Agreement in accordance with Section 2.2
(h) All
corporate and other proceedings of NeoStem in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements, and all documents
and instruments incident thereto, shall be reasonably satisfactory in substance
and form to the HK Entity, the Institute Co. and the HK Shareholder and their
counsel, and the HK Entity, the Institute Co. and the HK Shareholder and their
counsel shall have received all such documents and instruments, or copies
thereof, certified if requested, as may be reasonably
requested.
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(i) A
majority of the members of the board of directors of NeoStem, by taking all
required actions, shall have approved the transactions contemplated in this
Agreement.
ARTICLE
VII
INDEMNIFICATION;
SURVIVAL
Section
7.1 Indemnification.
(a) The
HK
Entity, the Institute Co., the WFOE and the HK Shareholder, jointly and
severally, hereby agree to indemnify NeoStem and each of the officers, agents
and directors of NeoStem against any loss, liability, claim, damage, or expense
(including, but not limited to, any and all expense whatsoever reasonably
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever) (“Loss”),
to
which it or they may become subject arising out of or based on (i) any material
inaccuracy of any representation or warranty when made or deemed made by any
of
the HK Entity, the Institute Co., the WFOE or the HK Shareholder herein, in
any
Ancillary Agreement or in any VIE Document or (ii) any failure of any the HK
Entity, the Institute Co., the WFOE or the HK Shareholder to perform any
covenant or agreement hereunder or under any Ancillary Agreement, the VIE
Documents or fulfill any other obligation in respect hereof or thereof.
(b) NeoStem
hereby agrees to indemnify the HK Entity, the Institute Co. and the HK
Shareholder against any Loss to which it or they may become subject arising
out
of or based on (i) any material inaccuracy of any representation or warranty
when made or deemed made by any of NeoStem herein or in any Ancillary Agreement
or (ii) any failure of any NeoStem to perform any covenant or agreement
hereunder or under any Ancillary Agreement or fulfill any other obligation
in
respect hereof or thereof.
Section
7.2 Indemnification
Procedures.
(a) All
claims for indemnification by any party (the “Indemnified
Party”)
hereunder shall be asserted and resolved as set forth in this section. In the
event that any written claim or demand for which the party from whom
indemnification is sought (the “Indemnifying
Party”)
would
be liable to any Indemnified Party hereunder is asserted against or sought
to be
collected from any Indemnified Party by a third party, such Indemnified Party
shall promptly, but in no event more than fifteen (15) days after such
Indemnified Party has actual knowledge of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the “Claim
Notice”);
provided, however, that failure to give such notification shall not affect
the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure (except the
Indemnifying Party shall not be liable for any expenses incurred during the
period in which the Indemnified Party failed to give such notice). The
Indemnifying Party shall have fifteen (15) days from the personal delivery
or
mailing of the claim Notice (the “Notice
Period”)
to
notify the Indemnified Party (i) whether or not the Indemnifying Party disputes
the liability of the Indemnifying Party to the Indemnified Party hereunder
with
respect to such claim or demand and (ii) whether or not it desires to defend
the
Indemnified Party against such claim or demand.
-33-
(b) All
costs
and expenses incurred by the Indemnifying Party in defending such claim or
demand shall be a liability of, and shall be paid by, the Indemnifying Party.
Except as hereinafter provided, in the event that the Indemnifying Party
notifies the Indemnified Party within the Notice Period that it desires to
defend the Indemnified Party against such claim or demand, the Indemnifying
Party shall have the right to assume the defense of the Indemnified Party by
appropriate proceedings; provided, that (i) counsel for the Indemnifying Party
who shall conduct such defense shall be reasonably satisfactory to the
Indemnified Party, and the Indemnified Party may participate in such defense
at
such Indemnified Party’s cost and expense and (ii) except with the prior written
consent of the Indemnified Party, no Indemnifying Party, in the defense of
any
such claim or demand, shall consent to entry of any judgment or enter into
any
settlement that provides for injunctive or other nonmonetary relief affecting
the Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a release
from all liability with respect to such claim or demand. In the event that
the
Indemnifying Party does not accept the defense of any matter as above provided,
the Indemnified Party shall have the full right to defend against any such
claim
or demand, and shall be entitled to settle or agree to pay in full such claim
or
demand. In any event, the Seller Group and NeoStem shall cooperate in the
defense of any claim or demand subject to this Section 7 and the records of
each
shall be available to the other with respect to such defense.
ARTICLE
VIII
TERMINATION
Section
8.1 Termination.
Notwithstanding anything to the contrary in this Agreement, this Agreement
may
be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing Date:
(a) by
mutual
written consent of the parties hereto; or
(b) by
the HK
Entity, the Institute Co. and the HK Shareholder or NeoStem by written notice
to
the other party after 5:00 p.m. New York time on March 31, 2009, if the
transactions contemplated hereby shall not have been consummated pursuant
hereto, unless such date is extended by the mutual written consent of the
Persons in the Seller Group and NeoStem.
Section
8.2 Effect
of Termination.
In the
event of the termination of this Agreement by any party hereto pursuant to
Section 8.1, written notice thereof shall forthwith be given to the other party
and the transactions contemplated by this Agreement shall be terminated, without
further action by any party. If the transactions contemplated by this Agreement
are terminated as provided herein, each party shall promptly return the other
parties all confidential documents and other material received from such parties
and their Representatives relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof. Upon termination,
this
Agreement shall become void and have no effect, without liability to any Person
in respect hereof or of the transactions contemplated hereby on the part of
any
party hereto, or any of its directors, officers, Representatives, stockholders
or Affiliates, except as specified in Section 5.3 and except for any liability
resulting from such party’s breach of this Agreement.
-34-
ARTICLE
IX
MISCELLANEOUS
Section
9.1 Publicity. So
long
as this Agreement is in effect, none of the parties hereto nor their respective
affiliates shall issue or cause the publication of any press release or other
public announcement with respect to the transactions contemplated by this
Agreement without the consent of the other parties, which consent shall not
be
unreasonably withheld or withdrawn, except as may be required by law or the
regulations or policies of any securities exchange (and in that event only
if
time does not permit), in which case the party required to make the release
or
statement shall provide prompt notice to the other parties so that they may
seek
an appropriate protective order, waive compliance with the terms of this section
or comment on such release or statement in advance of such
issuance.
Section
9.2 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):
if
to the
HK Entity or the HK Shareholder, to:
China
StemCell Medical Holding Limited
12th
Floor,
Ruttonjee
House,
11Duddell
Street,
Central,
Hongkong
Attn:
Zhao Shuwei
if
to
NeoStem:
NeoStem,
Inc.
20
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) 597-2400
-35-
Section
9.3 Interpretation.
(a) 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.
(b) 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.
Section
9.4 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.
Section
9.5 Entire
Agreement.
This
Agreement (including the documents and the instruments referred to herein)
and
any and all confidentiality agreements previously entered into between among
the
parties hereto, 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.
Section
9.6 Third-Party
Beneficiaries.
Nothing
in this Agreement, express or implied, is intended or shall be construed to
create any third-party beneficiaries.
Section
9.7 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 Exchange
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.
Section
9.8 Consent
to Jurisdiction; Venue.
(a) 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.
(b) 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 Exchange, 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 9.2. Nothing in this Section 9.8 shall affect the right
of
any party hereto to serve legal process in any other manner permitted by
law.
-36-
Section
9.9. Specific
Performance; Rescission Rights.
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 by this Agreement, including, without limitation, pursuant
to
the indemnification pursuant to Article VII, or by law, each of the parties
hereto is entitled to a decree of specific performance, provided such party
is
not in material default hereunder, and NeoStem shall have the right to rescind
this Agreement, in its entirety, if and to the extent, there shall occur at
any
time (i) any material inaccuracy of any representation or warranty when made
or
deemed made by any of the HK Entity, the Institute Co., the WFOE or the HK
Shareholder herein, in any Ancillary Agreement or in any VIE Document or (ii)
any failure of any the HK Entity, the Institute Co., the WFOE or the HK
Shareholder to perform any covenant or agreement hereunder or under any
Ancillary Agreement, the VIE Documents or fulfill any other obligation in
respect hereof or thereof.
Section
9.10. 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.
Section
9.11 Expenses. Subject
to the provisions of Sections 2.2 and 5.10, all costs and expenses incurred
in
connection with this Agreement and the transactions contemplated hereby shall
be
paid by the party incurring such expenses.
Section
9.12 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.
Section
9.13 No
Strict Construction. Each
of
the HK Entity, the HK Shareholder and NeoStem acknowledges that this Agreement
has been prepared jointly by the parties hereto, and shall not be strictly
construed against any party.
Section
9.14 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.
[Remainder
of Page Intentionally Left Blank]
-37-
IN
WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
as
of the day and year first above written.
|
NEOSTEM,
INC.
By:
/s/
Robin L. Smith
Name:
Robin L. Smith
Title:
Chief Executive Officer
CHINA
STEMCELL MEDICAL HOLDING LIMITED
By:
/s/
Shuwei Zhao
Name:
Shuwei Zhao
Title:
Authorized Representative
SHANDONG
NEW MEDICINE RESEARCH INSTITUTE OF INTEGRATED TRADITIONAL AND WESTERN
MEDICINE LIMITED LIABILITY COMPANY
By:
/s/
Wang Taihua
Name:
Wang Taihua
Title:
Authorized Representative
/s/
Shuwei Zhao
Zhao
Shuwei
BEIJING
HUAMEITAI BIO-TECHNOLOGY LIMITED LIABILITY COMPANY
By:
/s/
Shuwei Zhao
Name:
Shuwei Zhao
Title:
Authorized Representative
|
-38-
Exhibit
99.1
NeoStem,
Inc. to Enter the Regenerative Medicine Market in Asia
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 a Hong Kong corporation, whose wholly-owned subsidiary, Beijing
HuaMeiTai Bio-technology Limited Liability Company, has a series of contracts
with Shandong New Medicine Research Institute of Integrated Traditional and
Western Medicine LLC that establish control over Shandong’s business, personnel
and finance as though it were a wholly-owned subsidiary.
Shandong
New Medicine Research Institute currently administers a multitude of treatments
and is a leading provider of regenerative medical therapies in China which
strategically fits into both NeoStem’s existing business and intellectual
property platform. Through the acquisition, NeoStem will align itself with
Dr. Wang Taihua, founder of Shandong New Medicine Research Institute and a
leading provider of regenerative therapies in China.
“We
look
forward to working with NeoStem in the support of both our efforts in
providing new and innovative cell regenerative therapies and also bringing
to
the People’s Republic of China enhanced technologies of collection and
cryopreservation of regenerative cells,” said Dr. Wang Taihua. “We are
also particularly excited at the prospect of collaborating with NeoStem to
vet
new technologies and bring VSEL technology to the large population base of
the
PRC.”
Robin
Smith, MD, CEO of NeoStem said, “NeoStem is very excited at the idea of bringing
our expertise in cell extraction and preservation protocols as well as advances
in research and development and clinical trial know-how to roll out in China
through Shandong New Medicine Research Institute and believe the strong
strategic fit of the two companies will result in an acceleration of the
business model of both companies.”
NeoStem
also looks forward to assisting Dr. Wang in creating a destination site for
individuals looking to receive care outside of their place of residency. The
objectives of such individuals, according to The McKinsey Quarterly (May
2008), is to obtain advanced technologies, better medical care than they could
find in their home country, quicker access to medically necessary procedures,
lower costs for medically necessary procedures, and discretionary procedures.
NeoStem believes it could benefit from medical tourism.
“We
have
already begun to see international interest,” stated Dr. Smith, as reflected in
the recent Deloitte
2008 Survey of Health Care Consumers
which
indicates that Medical Tourism is set to explode in growth over the next 3-5
years for people going outside of the United States to seek medical care.
According to Deloitte,
whereas
in 2007, 750,000 Americans traveled abroad for medical care, it is anticipated
that by 2010 this number will grow to 6,000,000. Dr. Smith further
commented, "NeoStem believes that individuals in increasing numbers will seek
safe and effective regenerative medicine therapies abroad that are not yet
approved in the United States and many important clinical advances will be
in
hospitals and clinics outside the United States. We believe that we could gain
value from this by including Medical Tourism in the Company’s future business
strategy in collaboration with Dr Wang.”
The
consideration to be paid by NeoStem to effect the acquisition is 5,000,000
shares of common stock. This acquisition is subject to the approval of the
shareholders of NeoStem, 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 acquisition 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.
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 and the
realization of the potential strategic benefits of the 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, NeoStem, Inc., +1-212-584-4180,
rsmith@neostem.com