Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEOSTEM, INC.,
CBH ACQUISITION LLC,
CHINA BIOPHARMACEUTICALS HOLDINGS, INC.
AND
CHINA BIOPHARMACEUTICALS CORP.
November 2, 2008
TABLE OF CONTENTS
EXHIBIT INDEX
Exhibit A - Class B Warrant
Exhibit B - Class C Warrant
Exhibit C - CBH Lock-Up and Voting Agreement
Exhibit D - Escrow Agreement
Exhibit E - Support Agreement
Exhibit F - Erye Letter of Intent to Enter into Amended and Restated Joint
Venture Agreement
Exhibit G - CBH Liability Release
Exhibit H - Amended and Restated Erye Joint Venture Agreement
Exhibit I - NeoStem Lock-Up and Voting Agreement
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LS Draft 10/30/08
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and
entered into as of the 2nd day of November, 2008, by and among NeoStem, Inc., a
Delaware corporation ("NeoStem"), CBH Acquisition LLC, a Delaware limited
liability company and a wholly owned subsidiary of NeoStem ("Subco"), China
Biopharmaceuticals Holdings, Inc., a Delaware corporation ("CBH") and China
Biopharmaceutical Corp., a British Virgin Islands corporation ("CBC"). NeoStem,
Subco and CBH are sometimes collectively referred to as the "Parties"; each
individually a "Party".
PRELIMINARY STATEMENTS
A. NeoStem is engaged in a platform business of operating a
commercial autologous adult stem cell bank, is pioneering the pre-disease
collection, processing and long-term storage of stem cells from adult donors for
use for their own future medical treatment and has entered into research and
development through the acquisition of a worldwide exclusive license of
technology to identify and isolate very small embryonic-like stem cells.
B. CBH is a pharmaceutical company focused on developing,
manufacturing and distributing drugs in the PRC. CBH is a holding company with
two subsidiaries, Suzhou Erye Pharmaceuticals Company Ltd. ("Erye"), a
Sino-Foreign joint venture with limited liability organized under the laws of
the People's Republic of China (the "PRC"), and CBC. Erye is engaged in the
production and sale of injection drugs, capsule drugs, API and aluminum caps for
injection glass vials.
C. NeoStem desires to acquire CBH's 51% ownership interest ("Erye
Ownership") in Erye plus net cash which shall not be less than $550,000 after
payment of all litigation expenses and CBH Payable Obligations (the "Minimum
Cash"). Prior to the Merger (as defined below), CBH will spin off all of its
shares of CBC Common Stock (as defined herein) to CBH's shareholders in a
liquidating distribution (the "Spin-Off") so that the only material assets of
CBH following the Spin-Off will be the Erye Ownership and cash.
D. NeoStem desires to acquire the Erye Ownership through the merger
of CBH (after the Spin-off) with and into Subco, with Subco as the surviving
entity (the "Merger"). The Merger is intended to be a tax-free merger under
Section 368(a)(1)(A) of the Internal Revenue Code (the "Code"). Each of the
Parties has determined that the Merger is consistent with and in furtherance of
its respective long-term business strategies and desires to combine their
respective businesses and for the holders of shares of CBH Common Stock and/or
shares of CBH Preferred Stock (each, as defined herein) ("CBH Stockholders") to
have a continuing equity interest in the combined NeoStem/Erye businesses
through the ownership of NeoStem securities.
E. Pursuant to the terms and subject to the conditions set forth in
this Agreement as consideration in the Merger, NeoStem shall issue to the CBH
Stockholders the following (collectively, the "Exchanged Securities"):
1. 7,500,000 shares of NeoStem Common Stock (as defined
herein) (the "Exchanged Common Shares") (of which 150,000 shares shall be
delivered to the Escrow Agent to be held in escrow pursuant to the Escrow
Agreement annexed as Exhibit D) to be issued to the holders of CBH Common Stock
(inclusive of any CBH Common Stock issued upon exercise of any CBH Common Stock
Purchase Warrants prior to the Closing);
2. (a) 5,383,009 shares of NeoStem Common Stock ("RimAsia
Exchanged Common Shares"), (b) 6,977,512 shares of NeoStem Series C Convertible
Preferred Stock (as defined herein), each with a liquidation preference of
$1.125 and convertible to shares of NeoStem Common Stock at $.90 ("RimAsia
Exchanged Preferred Shares") and (c) Class B warrants (the "Class B Warrants")
to purchase 2,400,000 shares of NeoStem Common Stock at $0.80 per share under
the Class B Warrant Agreement, a copy of which is attached hereto as Exhibit A
(collectively, the RimAsia Exchanged Common Shares, the RimAsia Exchanged
Preferred Shares and the Class B Warrants are referred to as the "RimAsia
Exchanged Securities"), to be issued to RimAsia Capital Partners, L.P.
("RimAsia"); and
3. subject to acceptance by the holders of CBH Common Stock
Purchase Warrants to purchase an aggregate of up to 7,831,684 shares of CBH
Common Stock (collectively, the "CBH Common Stock Purchase Warrants"), Class C
warrants (the "Class C Warrants") to purchase up to 2,012,097 shares of NeoStem
Common Stock at an exercise price equal to $2.50 per share under the Class C
Warrant Agreement, the form of which is attached here to as Exhibit B, to be
issued to such holders of CBH Common Stock Purchase Warrants.
E. The respective Boards of Directors (or committees thereof) of
NeoStem, Subco and CBH have determined that the Merger, in the manner
contemplated herein, is desirable and in the best interests of their respective
stockholders and, by resolutions duly adopted, have approved and adopted this
Agreement.
NOW, THEREFORE, in consideration of these premises and the mutual
and dependent promises hereinafter set forth, the parties hereto hereby agree as
follows:
ARTICLE I.
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
in accordance with the provisions of the Delaware General Corporation Law (the
"DGCL"), CBH shall be merged with and into Subco at the Effective Time. As a
result of the Merger, the separate existence of CBH shall cease and Subco shall
continue its existence under the laws of the State of Delaware. Subco, in its
capacity as the limited liability company surviving the Merger, is hereinafter
sometimes referred to as the "Surviving Company."
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1.2 Effective Time. As promptly as possible on the Closing Date (as
defined herein), the parties shall cause the Merger to be consummated by filing
with the Secretary of State of the State of Delaware (the "Delaware Secretary of
State") a certificate of merger (the "Certificate of Merger") in such form as is
required by Section 18-209 of the Delaware Limited Liability Company Act
("DLLCA") and executed in accordance with the DLLCA. The Merger shall become
effective (the "Effective Time") when the Certificate of Merger has been filed
with the Delaware Secretary of State, which filing shall occur on the Closing
Date, or at such later time as shall be agreed upon by NeoStem and CBH and
specified in the Certificate of Merger. Prior to the filing referred to in this
Section 1.2, a closing (the "Closing") shall be held at the offices of
Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068 or such
other place as the parties may agree, as soon as practicable (but in any event
within five Business Days (as defined herein)) following the date upon which all
conditions set forth in Article V hereof have been satisfied or waived, or at
such other date as NeoStem and CBH may agree, provided that the conditions set
forth in Article V have been satisfied or waived at or prior to such date. The
date on which the Closing takes place is referred to herein as the "Closing
Date." For all tax purposes, the Closing shall be effective at the end of the
day on the Closing Date. For purposes of this Agreement, the term "Business Day"
means a day, other than a Saturday or Sunday, on which commercial banks in New
York City are open for the general transaction of business.
1.3 Effects of the Merger. From and after the Effective Time, the Merger
shall have the effects set forth in Section 18-209(g) of the DLLCA.
1.4 Certificate of Formation and Operating Agreement. At the Effective
Time, (i) the certificate of formation of the Surviving Company as in effect
immediately prior to the Effective Time shall be amended as of the Effective
Time so as to contain the provisions, and only the provisions, contained
immediately prior thereto in the certificate of formation of Subco, except for
Article FIRST thereof which may be revised to change the name of the limited
liability company as mutually agreed to by the parties hereto, and (ii) the
limited liability company agreement of Subco in effect immediately prior to the
Effective Time shall be the limited liability company agreement of the Surviving
Company; in each case until amended in accordance with applicable law.
1.5 Managers and Officers of the Surviving Company. From and after the
Effective Time, individuals designated by NeoStem prior to the Effective Time
shall be the officers of the Surviving Company and the managers of Subco, if
any, shall be the managers of the Surviving Company, in each case until their
respective successors are duly elected and qualified. On or prior to the Closing
Date, CBH shall deliver to NeoStem a written resignation, in form and substance
satisfactory to NeoStem, from each director and officer of CBH, effective as of
the Effective Time.
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ARTICLE II.
CONVERSION AND DISTRIBUTION OF SECURITIES
2.1 Conversion of Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of NeoStem, Subco or CBH or their
respective stockholders or members, as the case may be:
2.1.1 Each membership interest of Subco issued and outstanding
immediately prior to the Effective Time shall be converted into a membership
interest of the Surviving Company. Such membership interests shall thereafter
constitute all of the issued and outstanding equity of the Surviving Company, so
that NeoStem shall own all of the membership interests in, and equity of, the
Surviving Company.
2.1.2 Subject to the other provisions of this Article II, all of the
shares of CBH Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into the right to receive in the aggregate all
of the Exchanged Common Shares so that all of the holders of CBH Common Stock
(inclusive of any CBH Common Stock issued upon exercise of any CBH Common Stock
Purchase Warrants) shall be entitled to receive 7,500,000 shares of NeoStem
Common Stock in the aggregate (of which 150,000 shares shall be delivered to the
Escrow Agent to be held in escrow pursuant to the Escrow Agreement annexed as
Exhibit D).
2.1.3 Each share of capital stock of CBH held in the treasury of CBH
shall be canceled and retired and no payment shall be made in respect thereof.
2.1.4 All of the shares of CBH Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time shall be converted into all
of the RimAsia Exchanged Securities subject to cancellation of the RimAsia CBH
Warrants as specified in Section 2.2.1.
2.1.5 Dissenting Shares (as defined herein) shall, by virtue of the
Merger, be cancelled and extinguished and converted into the right to receive
payment provided for by Section 262 of the DGCL, in accordance with the
provisions of Section 2.5.
2.2 Distributions; Exchange Ratio; Fractional Shares; Adjustments.
2.2.1 Pursuant to a CBH Lock-Up and Voting Agreement, dated as of
the date hereof, among RimAsia, the CBH Preferred Stockholders, each director
and officer of each of CBH, CBH, Erye, EET, Dr. Wang Taihua and NeoStem, a copy
of which is attached hereto as Exhibit C (the "CBH Lock-Up and Voting
Agreement"), RimAsia has consented to the treatment set forth in Section 2.1.4
above and agreed, upon the effectiveness of the Merger, to cancel the Common
Stock Purchase Warrant to purchase up to 12 million shares of CBH Common Stock
issued to RimAsia on June 30, 2006 and modified on November 16, 2007 ("Modified
Warrants"), and the Additional Common Stock Purchase Warrants (No. R-2) issued
to RimAsia on November 16, 2007 ("Additional Warrants, and collectively with the
Modified Warrants, the "RimAsia CBH Warrants") and exchange all of its interest
in CBH, including but not limited to all of the CBH Series B Preferred Stock
outstanding for the RimAsia Exchanged Securities.
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2.2.2 Pursuant to the CBH Lock-Up and Voting Agreement, the holders
of the CBH Series A Preferred Stock have consented to the Merger and have agreed
to cancel and cause to be terminated such holders' shares of CBH Series A
Preferred Stock as set forth in Section 2.7 and to cancel any CBH Warrants held
by such holders.
2.2.3 As soon as practical after the effectiveness of the Merger,
each holder of CBH Common Stock shall receive, for each share of CBH Common
Stock held by such CBH common shareholder, a fraction of a share of NeoStem
Common Stock equal to the Exchange Ratio (as defined herein).
2.2.4 The "Exchange Ratio" shall be equal to the quotient of
7,350,000 divided by the sum of (x) the number of shares of CBH Common Stock
outstanding at the Effective Time, and (y) the number of shares of CBH Common
Stock issuable upon exercise of in-the-money warrants of CBH immediately prior
to the Effective Time subject to adjustment as set forth herein. Any Escrow
Shares shall be distributed pro rata to the same record shareholders as the
initial distribution.
2.2.5 No certificates for fractional shares of NeoStem Common Stock
shall be issued as a result of the distribution provided for in Section 2.2.3.
In lieu of any fractional share to which the CBH Stockholders would otherwise be
entitled as a result of the distribution provided for in Section 2.2.3, all
issuances of NeoStem Common Stock shall be rounded up to the nearest whole
share.
2.2.6 In the event that, subsequent to the date hereof and prior to
the Effective Time, NeoStem or CBH shall declare a stock dividend or other
distribution payable in shares of NeoStem Common Stock or CBH Common Stock or
securities convertible into shares of NeoStem Common Stock or CBH Common Stock
or effect a stock split, reclassification, combination or other change with
respect to shares of NeoStem Common Stock or CBH Common Stock, the Exchange
Ratio set forth in Section 2.2.4 shall be adjusted to reflect such dividend,
distribution, stock split, reclassification, combination or other change.
2.2.7 In the event that, subsequent to the date hereof and prior to
the Effective Time, CBH or Erye shall incur any liabilities or obligations of
any nature, whether absolute, accrued, unmatured, contingent or otherwise, or
any unsatisfied judgments or any leases of personalty or realty or unusual or
extraordinary commitments, other than those liabilities or allowances recorded,
accrued or reserved against on the CBH Balance Sheet (as defined herein) or
described in the notes thereto, such liabilities or obligations shall be paid,
satisfied or otherwise provided for or transferred to CBC prior to the Spin-Off
in accordance with Section 5.17.1.
2.3 Exchange of Certificates.
2.3.1 Exchange Agent. Promptly following the Effective Time, NeoStem
shall deposit with Continental Stock Transfer & Trust Company or such other
exchange agent as may
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be designated by NeoStem (the "Exchange Agent"), for the benefit of CBH
Stockholders, for distribution in accordance with this Section 2.3, certificates
representing 7,500,000 shares of the Exchanged Common Shares for distribution to
holders of outstanding shares of CBH Common Stock pursuant to Section 2.2.3.
2.3.2 Exchange Procedures. As soon as practicable after the
Effective Time, CBH shall instruct the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of CBH Common Stock, a certificate or
certificates for the Exchanged Common Shares in the pro rata amounts provided
for in this Section 2.3.
2.3.3 Distributions with Respect to CBH Preferred Stock.
Simultaneously with the consummation of the Merger, RimAsia shall cancel the
RimAsia CBH Warrants and all its outstanding shares of CBH Series B Preferred
Stock shall be cancelled. In exchange, NeoStem will issue the RimAsia Exchanged
Securities to RimAsia as set forth in Section 2.2.1.
2.3.4 Erye. At the Closing, CBH shall deliver to NeoStem a duly
executed assignment of its Erye Ownership, consented to by Erye and the other
49% equity holder in Erye. CBH represents and warrants that following the
Merger, NeoStem will have the Erye Ownership, and will have unfettered access to
the Minimum Cash.
2.4 Treatment of Warrants. At the Effective Time, subject to acceptance by
the holders of CBH Common Stock Purchase Warrants, the CBH Common Stock Purchase
Warrants shall be canceled and the holders thereof shall receive, in the
aggregate, Class C Warrants to purchase up to an aggregate of 2,012,097 shares
of NeoStem Common Stock at an exercise price of $2.50 per share pursuant to the
Class C Warrant Agreement. Notwithstanding anything contained herein to the
contrary, if and to the extent NeoStem determines, in its sole discretion, to
waive the condition to NeoStem's obligation to consummate the Merger that all of
the holders of CBH Common Stock Purchase Warrants accept Class C Warrants in
exchange for their respective CBH Common Stock Purchase Warrant set forth in
Section 6.2.20, then any holder of CBH Common Stock Purchase Warrants that does
not accept Class C Warrants in exchange for such holder's CBH Common Stock
Purchase Warrants, upon consummation of the Merger, shall be entitled to the
rights under the CBH Common Stock Purchase Warrants held by such holder.
2.5 Escrow Shares. At the Closing, NeoStem shall issue an aggregate amount
of 200,000 shares of NeoStem Common Stock to CBC in escrow as a conditional
bonus payment if introductions with respect to the Shangdong Institute made by
CBC to NeoStem result NeoStem's acquisition of the Shangdong Institute prior to
the six month anniversary of the Closing (together with the 150,000 shares of
the Common Stock provided in Preliminary Statement E(1), collectively, the
"Escrow Shares"). The certificates for the Escrow Shares (the "Escrow
Certificates") shall be deposited with an escrow agent to be mutually agreed to
by NeoStem and CBC prior to the Closing (the "Escrow Agent"). The Certificates
shall be held and disbursed by the Escrow Agent pursuant to the terms and
conditions of an Escrow Agreement, in the form attached hereto as Exhibit D,
subject to such modifications thereof as the Escrow Agent shall reasonably
request prior to the Closing and as shall be accepted by CBC and NeoStem (such
acceptance not to be unreasonably denied) (as so modified, the "Escrow
Agreement").
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2.6 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of CBH Common Stock and CBH Preferred Stock held by holders
thereof who are entitled to vote on the Merger and who have not voted such
shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal rights shall have been properly exercised and
perfected in accordance with Section 262 of the DGCL (the "Dissenting Shares"),
shall not be converted into or represent the right to receive the Merger
Consideration which the holders of CBH Common Stock and CBH Preferred Stock are
entitled to receive pursuant to Sections 2.1 through 2.3 above, and holders of
such Dissenting Shares shall be entitled to receive only the payment provided
for by Section 262 of the DGCL unless and until such holders fail to perfect or
effectively withdraw or otherwise lose their rights to demand payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such Dissenting Shares shall
thereupon be deemed to be "Non-Electing Company Shares." CBH shall give NeoStem
(i) prompt notice of any demands for payment for Dissenting Shares pursuant to
Section 262 of the DGCL received by CBH, withdrawals of such demands, and any
other instruments served pursuant to the DGCL and received by CBH and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for payment pursuant to Section 262 of the DGCL. CBH shall not, except with the
prior written consent of NeoStem or as otherwise required by Applicable Law,
make any payment with respect to any such demands for payment or offer to settle
or settle any such demands. Notwithstanding anything in this Agreement to the
contrary, NeoStem, at the election of its Board of Directors (or a committee
thereof), in its sole discretion, may terminate and abandon this Agreement at
any time prior to the Closing if the Dissenting Shares represent more than five
(5%) of the shares of CBH Common Stock or CBH Preferred Stock held by holders
thereof who are entitled to vote on the Merger.
2.7 Satisfaction of Certain CBH Obligations. At the Effective Time,
NeoStem shall issue to Stephen E. Globus, a director of CBH or related persons
("Globus") 50,000 shares of NeoStem Common Stock in exchange for cancellation of
all of the shares of CBH Series A Preferred Stock held by Globus (which Globus
and CBH have represented to NeoStem are all of the outstanding shares of Series
A Preferred Stock). NeoStem shall also issue 60,000 shares of NeoStem Common
Stock to Globus and 40,000 shares of NeoStem Common Stock to Chris Peng Mao, the
Chief Executive Officer of CBH ("Mao") (an aggregate of 150,000 shares of
NeoStem Common Stock being issued pursuant to this paragraph) at or prior to the
Closing, in exchange for the cancellation and the satisfaction in full of the
Globus Obligation and the Mao Obligation (each, as defined in Section 6.2.21
herein). CBH and Globus shall cause all of the outstanding shares of the CBH
Series A Preferred Stock to be cancelled and terminated no later than
immediately prior to the record date for any shareholder vote with respect to
the Merger. The "Globus Shares" shall be allocated among related persons in
accordance with written instructions to be provided to NeoStem by Globus and
certified by him.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF CBH
Except as set forth in the disclosure statement delivered by CBH to
NeoStem at or prior to the execution of this Agreement (the "CBH Disclosure
Statement") (each section of which qualifies the correspondingly numbered
representation and warranty, regardless of whether such representation or
warranty expressly refers to or is qualified by reference to such CBH Disclosure
Statement), or disclosed in the CBH SEC Reports (as defined herein), CBH
represents and warrants to NeoStem and Subco as follows (it being understood and
agreed that each representation and warranty with respect to any payment
obligation of Erye that is qualified hereunder as to materiality, shall refer to
any such obligation (i) having a dollar value of more than $50,000, to the
extent such value is quantifiable, and (ii) not incurred or made in the ordinary
course of business):
3.1 Organization and Qualification.
3.1.1 Each of CBH and Erye is an entity duly incorporated, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the CBH SEC
Reports (as defined herein), except that as of the date hereof, CBH is not in
good standing under the laws of Delaware but covenants to pay all taxes and be
in good standing prior to the filing of any Registration Statement or Joint
Proxy Statement with the SEC. Each of CBH and Erye is duly qualified to transact
business as a foreign corporation or other foreign entity and is in good
standing in each jurisdiction in which the conduct of its business or the
ownership, leasing or operation of its property requires such qualification,
except for failures to be so qualified or in good standing which would not,
singly or in the aggregate with all such other failures, have a CBH Material
Adverse Effect (as defined herein). For purposes of this Agreement, "CBH
Material Adverse Effect" means, with respect to any event, occurrence, matter,
failure of event or occurrence, change, effect, state of affairs, breach,
default, violation, fine, penalty or failure to comply (each, a "Circumstance"),
individually or taken together with all other Circumstances contemplated by or
in connection with any or all of the representations and warranties made in this
Agreement, a material adverse effect on the business, assets (including without
limitation intangible assets), liabilities (contingent or otherwise), financial
condition, results of operations or prospects of CBH and Erye, taken as a whole;
provided, however, that the term "CBH Material Adverse Effect" shall not be
deemed to include the impact of: (A) the implementation of changes in U.S.
generally accepted accounting principles; (B) actions and omissions of CBH or
its Subsidiaries taken or permitted with the prior written consent of NeoStem
after the date hereof; (C) expenses reasonably incurred by CBH or its
Subsidiaries in consummating the transactions contemplated by this Agreement;
(D) changes in the general economic or financial market conditions; (E) any
occurrence, condition, change, event or effect that affects the pharmaceutical
industry generally; and (F) the outbreak or escalation of hostilities involving
the PRC or the United States, the declaration by the PRC or the United States of
war or the occurrence of any natural disasters and acts of terrorism.
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3.1.2 Neither CBH nor any of its Subsidiaries is in violation of any
of the provisions of its certificate of incorporation or by-laws, or other
similar organizational documents, each as amended and currently in effect, or,
if it is a limited liability company or partnership, its operating agreement,
partnership agreement or other comparable agreement. True and complete copies of
the certificate of incorporation and by-laws, each as amended and as currently
in effect, of CBH, and true and complete copies of the certificate of
incorporation and by-laws, or other similar organizational documents, each as
amended and currently in effect, of each Subsidiary of CBH have been previously
delivered or made available to NeoStem. No amendments to the certificate of
incorporation, as amended, of CBH have been authorized since 2005 and no
amendments to the by-laws of CBH have been authorized since 2005. For purposes
of this Agreement, all references to the "Subsidiaries" of CBH shall constitute
references to any entity (i) the accounts of which would be consolidated with
those of CBH in CBH's consolidated financial statements if such financial
statements were prepared in accordance with generally accepted accounting
principles or (ii) of which securities or other ownership interests representing
more than 50% of the equity or more than 50% of the ordinary voting power or, in
the case of a partnership, more than 50% of the general partnership interests or
more than 50% of the profits or losses are owned by CBH and/or one or more
subsidiaries of CBH, and shall include, without limitation, CBC, Nanjing Keyuan
Pharmaceutical R&D Co., Ltd., a Chinese company ("Nanjing Keyuan"), and Erye.
3.1.3 Erye is a Sino-Foreign Joint Venture with limited liability
organized under the laws of the PRC, duly incorporated, validly existing and in
good standing under the laws of the PRC. The articles of association, the
business license and other constituent documents of Erye comply with the
requirements of applicable laws of the PRC and are in full force and effect.
Erye has full power and authority (corporate and other) and all consents,
approvals, authorizations, orders, registrations, clearances and qualifications
of or with any local, domestic, foreign or multi-national court, arbitration
tribunal, administrative agency, commission, legislative body or other
governmental or regulatory body, agency, instrumentality or authority,
including, without limitation, of the United States, the PRC, or otherwise (a
"Governmental Authority") having jurisdiction over Erye or any of its properties
required for the ownership and the conduct of its business and has the legal
right and authority to own, use, lease and operate its assets and to conduct its
business. All of the issued shares of capital stock of Erye has been duly and
validly authorized and issued and are fully paid and non-assessable. Erye has
obtained all approvals, authorizations, consents and orders, and has made all
filings and registrations, which are required under PRC laws and regulations for
the ownership interest by CBH or NeoStem of its equity interest in Erye; and
there are no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, nor any agreements or other obligations to
issue or other rights to convert any obligation into, any equity interest in
Erye.
3.2 Authority Relative to this Agreement. (a) CBH and Erye have the
corporate power and authority to execute and deliver this Agreement and, upon
obtaining the approval of a majority of the outstanding shares of the CBH Common
Stock and each of the CBH Series A Preferred Stock and Series B Preferred Stock
of CBH (collectively, the "CBH Preferred Stock") at the CBH Special Meeting (as
defined herein) or any adjournment thereof as authorized under the DGCL, to
consummate the Merger and the other transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated hereby have been duly and validly authorized
by the Boards of Directors of CBH and Erye and except as stated in the preceding
sentence, no other corporate proceedings on the part of CBH or Erye are
necessary to authorize this Agreement or to consummate the Merger and the other
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of CBH and Erye and, assuming the due
authorization, execution and delivery hereof by NeoStem and Subco and subject to
stockholder approval as aforesaid, constitutes a valid and binding agreement of
each of CBH and Erye enforceable against each of CBH and Erye in accordance with
its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
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(b) As a result of the Merger, the Surviving Company will own
of record the Erye Ownership, and NeoStem will beneficially own the Erye
Ownership, free of all Encumbrances and free of all governed or contractual
restrictions.
(c) CBH has the corporate power and authority to effect the
Spin-Off. The consummation of the Spin-Off has been duly and validly authorized
by the Board of Directors of CBH, and other than approval by the CBH
Stockholders, no other corporate proceedings on the part of CBH are necessary to
authorize or consummate the Spin-Off.
3.3 Consents, No Conflicts.
3.3.1 Except for actions to be taken in connection with (a) the
filing of the Certificate of Merger required under DLLCA Section 18-209(c), (b)
the filing and effectiveness of the Registration Statement (as hereinafter
defined), (c) filings required pursuant to any state securities or "blue sky"
laws, (d) filings and other matters relating to the listing or quoting on the
American Stock Exchange, Inc., The New York Stock Exchange, Inc. or The NASDAQ
Stock Market (each, an "Exchange") of the shares of NeoStem Common Stock
required to be issued pursuant to this Agreement, and (e) any other filings,
notices, disclosures or registrations set forth in Section 3.3.1 of the CBH
Disclosure Statement, no filing or registration with, notification or disclosure
to, or permit, authorization, consent or approval of, (x) any U.S. Governmental
Authority or (y) any third party, whether acting in an individual, fiduciary or
other capacity, is required for the consummation by CBH of the Merger or the
other transactions contemplated hereby or for the ownership by NeoStem of the
Erye Ownership.
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3.3.2 Except as set forth in Section 3.3.2 of the CBH Disclosure
Statement, the execution, delivery and performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby and
compliance by CBH and Erye with any of the provisions hereof do not and will
not: (i) subject to obtaining the approval of the Merger by holders of the CBH
Common Stock and the CBH Preferred Stock, conflict with or result in any breach
or violation of any provision of the certificate of incorporation or by-laws, or
other similar organizational documents, each as amended, of CBH or any of its
Subsidiaries or (ii) result in (1) a breach or violation of, a default under or
an event triggering any payment, obligation or acceleration of any obligation
pursuant to CBH Employee Benefit Plan (as defined herein) or any grant or award
made under any of the foregoing, (2) a breach or violation of, a default under
or an event triggering a right of termination of, a default under, or the
acceleration of any obligation or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time or both) pursuant to any provision of, any agreement, license,
lease of real or personal property, marketing agreement, contract, note,
mortgage, indenture or other obligation of CBH or any of its Subsidiaries ("CBH
Contracts") or, subject to making all filings, notifications and disclosures and
receipt of all permits, authorizations, consents and approvals referred to in
clauses "a" through "e" of Section 3.3.1 or in Section 3.3.1 of the CBH
Disclosure Statement, any law, rule, ordinance or regulation or judgment,
decree, order or award to which CBH or any of its Subsidiaries is subject or any
governmental or non-governmental authorization, consent, approval, registration,
franchise, license or permit under which CBH or any of its Subsidiaries conducts
any of its business, or (3) any other change in the rights or obligations of any
party under any of the CBH Contracts, except, with respect to this clause (ii),
for breaches, violations, defaults, triggering events, creations of Encumbrances
on assets, or changes in rights or obligations which would not, singly or in the
aggregate with all other such matters, have a CBH Material Adverse Effect.
3.3.3 Except as disclosed on Section 3.3.3 of the CBH Disclosure
Statement, Erye (a) is not in conflict with or in violation or breach of or
default under (and there exists no event that, with notice or passage of time or
both, would constitute a conflict, violation, breach or default with, of or
under) (i) any Law applicable to it or any of its properties, assets, operations
or business, (ii) any provision of its certificate of incorporation or by-laws,
or other similar organizational documents, each as amended, except in the case
of the foregoing clauses (i) and (iii) for any such conflicts, breaches,
violations and defaults that, individually or in the aggregate, could not have
or result in a CBH Material Adverse Effect. Except for the approval of the
competent authorities of commerce under the Law on Sino-Foreign Equity Joint
Ventures and its implementation regulations, no PRC Government Approval or other
consent is required to be obtained or made by Erye in connection with the
execution and delivery of this Agreement or the consummation of the Merger or
other transactions contemplated hereby.
3.4 Board Recommendation. The Boards of Directors of CBH and the board
member representatives from Erye have, each, by a unanimous written consent on
November 2, 2008, approved and adopted this Agreement, the Merger and the other
transactions contemplated hereby. In such resolutions, the Boards of Directors
of CBH and the board member representatives from Erye determined that the
consideration to be received by holders of CBH Common Stock and CBH Preferred
Stock pursuant to the Merger is fair to the holders of shares of CBH Common
Stock and CBH Preferred Stock, respectively, and recommended that the holders of
such shares approve and adopt this Agreement, the Merger and the other
transactions contemplated hereby (the "CBH Board Recommendation").
3.5 State Anti-takeover Statutes; Stockholder Protection Rights
Agreements. By virtue of resolutions heretofore approved by CBH's and Eyre's
Boards of Directors, the Merger, this Agreement, the CBH Lock-Up and Voting
Agreement, the Support Agreement (as defined herein) and the transactions
contemplated hereby will not be subject to the restrictions on business
combinations with interested stockholders otherwise applicable to the Merger,
this Agreement, the CBH Lock-Up and Voting Agreement, the Support Agreement or
the transactions contemplated hereby under Section 203 of the DGCL. CBH's Board
of Directors have taken such actions and votes as are necessary on its part to
render the provisions of Section 203 of the DGCL, all other applicable takeover
statutes of the DGCL inapplicable to this Agreement, the Merger, the CBH Lock-Up
and Voting Agreement, the Support Agreement and the transactions contemplated
hereby and thereby. Neither CBH nor Erye is a party to any stockholder
protection rights agreement or any agreement similar thereto.
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3.6 No Existing Violation, Default, Etc. None of CBH or its Subsidiaries
is in violation of (A) any Applicable Law or (B) any order, decree or judgment
of any Governmental Authority having jurisdiction over CBH or any of its
Subsidiaries. No event of default or event that, but for the giving of notice or
the lapse of time or both, would constitute an event of default, exists under
any CBH Contract or any lease, permit, license or other agreement or instrument
to which CBH or any of its Subsidiaries is a party or by which any of them is
bound or to which any of the properties, assets or operations of CBH or any of
its Subsidiaries is subject.
3.7 Licenses and Permits. Each of CBH and Erye has such certificates,
permits, licenses, franchises, consents, approvals, orders, authorizations and
clearances from appropriate governmental agencies and bodies ("CBH Licenses") as
are necessary to own, lease or operate its properties and to conduct its
business in the manner described in the CBH SEC Reports and as presently
conducted and all such CBH Licenses are valid and in full force and effect,
other than any failure to have any such CBH License or any failure of any such
CBH License to be valid and in full force and effect as would not, singly or in
the aggregate with all such other failures, have a CBH Material Adverse Effect.
Each of CBH and Erye is and, within the period of all applicable statutes of
limitations, has been in compliance with its obligations under such CBH Licenses
and no event has occurred that allows, or after notice or lapse of time would
allow, revocation or termination of such CBH Licenses. Each of CBH and Erye has
no knowledge of any facts or circumstances that could reasonably be expected to
result in an inability of CBH or any of its Subsidiaries to renew any material
CBH License. Subject to making all filings, notifications and disclosures and
receipt of all permits, authorizations, consents and approvals referred to in
Section 3.3.1 of the CBH Disclosure Statement, neither the execution nor
delivery by CBH of this Agreement nor the consummation of any of the
transactions contemplated herein will result in any revocation or termination of
any material CBH License.
3.8 Registration Statement; Prospectus/Joint Proxy Statement. None of the
information supplied or to be supplied by CBH, Erye or CBC for inclusion in, and
none of the information regarding CBH and its Subsidiaries incorporated by
reference in, the registration statement under the Securities Act registering
the NeoStem Common Stock to be issued pursuant to the Merger and the shares of
common stock, par value $1.00 per share, of CBC (the "CBC Common Stock") to be
issued pursuant to the Spin-Off (such registration statement, as amended by any
amendments thereto, being referred to herein as the "Registration Statement") or
the prospectus/joint proxy statement to be sent to the stockholders of NeoStem
and CBH in connection with the annual meeting of stockholders of NeoStem at
which such stockholders will be asked to approve the issuance of NeoStem Common
Stock pursuant to the Merger (the "NeoStem Annual Meeting") and the special
meeting of the stockholders of CBH at which such stockholders will be asked to
approve the Spin-Off, the Merger and this Agreement (the "CBH Special Meeting")
(such prospectus/joint proxy statement, as amended by any amendments thereto,
being referred to herein as the "Prospectus/Joint Proxy Statement"), including
all amendments and supplements to the Registration Statement and
Prospectus/Joint Proxy Statement, shall, in the case of the Registration
Statement, at the time the Registration Statement becomes effective and, in the
case of the Prospectus/Joint Proxy Statement, on the date or dates the
Prospectus/Joint Proxy Statement is first mailed to NeoStem and CBH stockholders
and on the date or dates of the NeoStem Annual Meeting and the CBH Special
Meeting, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. CBH and Erye will supply NeoStem with all business,
financial, legal, management and other information required for inclusion in a
Form S-4 under SEC rules.
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3.9 Finders or Brokers; Compensation Arrangements. Neither CBH nor any
Subsidiary of CBH has employed any investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who might
be entitled to a fee or any commission the receipt of which is conditioned in
whole or part upon consummation of the Merger.
3.10 SEC Reports. CBH has filed all forms, reports and documents required
to be filed by it with the SEC since December 31, 2007 (the "CBH Audit Date")
(including, without limitation, CBH's Annual Report on Form 10-KSB for the year
ended December 31, 2007 and CBH's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2008 and June 30, 2008 and all certifications and
statements required by Rule 13a-14 or 15d-14 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") or 18 U.S.C. Section 1350 (Section 906
of the Sarbanes-Oxley Act of 2002 ("SOX")) with respect to any Annual Reports or
Proxy Statements, and Current Reports on Form 8-K), pursuant to the federal
securities laws and the SEC's rules and regulations thereunder, and SOX and all
rules and regulations thereunder (collectively, and together with all forms,
reports and documents filed by CBH with the SEC after December 31, 2007,
including any amendments thereto, the "CBH SEC Reports"). CBH SEC Reports were
or will, as applicable, be prepared in accordance with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules and
regulations thereunder. As of their respective dates, none of CBH SEC Reports,
including, without limitation, any financial statements or schedules included
therein, contained or will contain, as applicable, any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were or are made, as applicable, made, not
misleading. No Subsidiary of CBH is or has been required to file any form,
report, registration statement or other document with the SEC.
3.11 Disclosure Controls and Procedures. CBH maintains disclosure controls
and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act. Such
controls and procedures are effective to ensure that all material information
concerning CBH and its Subsidiaries is made known on a timely basis to the
individuals responsible for the preparation of CBH's filings with the SEC and
other public disclosure documents. As used in this Section 3.11, the term "file"
shall be broadly construed to include any manner in which a document or
information is furnished, supplied or otherwise made available to the SEC.
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3.12 Financial Statements. The consolidated balance sheets and the related
consolidated statements of income and cash flows (including the related notes
thereto) of CBH included in CBH SEC Reports, as of their respective dates and
the consolidated balance sheets and related consolidated statements of income
and cash flows of Erye annexed hereto as Section 3.12 of the CBH Disclosure
Statement (the "Erye Financial Statements"), complied in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, were prepared in accordance with U.S. generally
accepted accounting principles applied on a basis consistent with prior periods
(except as otherwise noted therein), and present fairly in all material
respects, the consolidated financial position of CBH and its consolidated
Subsidiaries or Erye, as the case may be, as of their respective dates, and the
consolidated results of their operations and their cash flows for the periods
presented therein (subject, in the case of the unaudited interim financial
statements, to notes and normal year-end adjustments that were not material in
amount or effect).
3.13 SOX Certifications. The Chief Executive Officer and the Chief
Financial Officer of CBH have signed, and CBH has furnished to the SEC, all
certifications required by Sections 302 and 906 of SOX. Such certifications
contain no qualifications or exceptions to the matters certified therein and
have not been modified or withdrawn. Neither CBH nor any of it officers has
received notice from any Governmental Authority questioning or challenging the
accuracy, completeness, form or manner of filing or submission of such
certifications.
3.14 Undisclosed Liabilities. Except (i)as may be disclosed on Schedule
3.14(a) or 3.14(b) of the CBH Disclosure Statement, (ii) as reflected in CBH's
unaudited consolidated balance sheet at June 30, 2008 or liabilities described
in any notes thereto, (iii) for liabilities incurred in the ordinary course of
business since June 30, 2008 consistent with past practice or in connection with
this Agreement or the transactions contemplated hereby, or (iv) performance
obligations under contracts required in accordance with their terms, or
performance obligations, to the extent required under applicable laws, in each
case to the extent arising after the date hereof, neither CBH nor any of its
Subsidiaries has any material liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) and which, individually or in the
aggregate, could reasonably be expected to have a CBH Material Adverse Effect.
Set forth in Schedule 3.14(a) of the CBH Disclosure Statement are any and all
material liabilities and obligations of Erye (collectively, the "Eyre
Liabilities"), as of November 2, 2008. Set forth in Schedule 3.14(b) of the CBH
Disclosure Statement are any and all payable obligations of CBH and/or its
Subsidiaries (other than the Erye Liabilities as of November 2, 2008, )("CBH
Payable Obligations"), excluding the expenses incurred in connection with the
transactions contemplated by this Agreement (the "Transaction Expenses," which
is set forth in Schedule 3.14(c) of the CBH Disclosure Statement and shall be
approximately similar to NBS's transaction expenses), and the name and address
of each Person to whom each such liability or obligation is owed, and CBH shall
take any and all action necessary or appropriate to obtain a CBH Liability
Release (as defined herein) from each CBH Creditor (as defined herein) in
accordance with Section 5.17. To the best of knowledge of CBH and as of the date
of this Agreement, the CBH Payable Obligations set forth in Schedule 3.14(b) of
the CBH Disclosure Statement, excluding the Transaction Expenses, do not and
shall not exceed, individually or in the aggregate, $450,000.
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3.15 Off-Balance Sheet Arrangements. CBH and its Subsidiaries have not
effected any securitization transactions or "off-balance sheet arrangements" (as
defined in Item 303(c) of Regulation S-K of the SEC) since the CBH Audit Date.
CBH has delivered or made available to NeoStem copies of the documentation
creating or governing any such securitization transactions and off-balance sheet
arrangements.
3.16 Loans to Executives and Directors. CBH has not, since the effective
date of SOX, extended or maintained credit, arranged for the extension of
credit, or renewed an extension of credit, in the form of a personal loan to or
for any director or executive officer (or equivalent thereof) of CBH in
violation of SOX. CBH has not made any loan or extension of credit to which the
second sentence of Section 13(k)(I) of the Exchange Act applies.
3.17 Independent Auditors. Moore Stephens Wurth Frazer & Torbet, LLP
serves as CBH's and Erye's independent registered public accounting firm and to
CBH's knowledge, there are no relationships or services, or any other factors
that may affect the objectivity and independence of Moore Stephens Wurth Frazer
& Torbet, LLP under applicable auditing standards. Moore Stephens Wurth Frazer &
Torbet, LLP has not performed any non-audit services for CBH and its
Subsidiaries since the CBH Audit Date, which, in any such case, were required to
be disclosed in CBH SEC Reports and were not so disclosed.
3.18 Absence of Changes or Events. Except for (a) matters publicly
disclosed by CBH prior to the date hereof in CBH SEC Reports filed prior to the
date hereof, and (b) the settlement of the litigation in Hong Kong and Canada by
RACP Pharmaceutical Holdings Limited, a wholly-owned subsidiary of CBC, against
Li Xiaobo and certain other defendants in connection with the acquisition of
shares of Enshi International (Holdings) Pte Ltd (the "LXB Litigation").
3.18.1 Since December 31, 2007: (i) CBH and its Subsidiaries have
conducted their business in the ordinary course and have not entered into any
material oral or written agreement or other material transaction that is not in
the ordinary course of business (other than this Agreement) or that could
reasonably be expected to result in a CBH Material Adverse Effect; (ii) neither
CBH nor any of its Subsidiaries have sustained any material loss or interference
with their business or properties from fire, flood, windstorm, accident, strike
or other calamity (whether or not covered by insurance); (iii) there has been no
material change in the indebtedness of CBH and its Subsidiaries, no change in
the capital stock of CBH and no dividend or distribution of any kind declared,
paid or made by CBH on any class of its capital stock; (iv) there has been no
event or condition which has caused a CBH Material Adverse Effect, nor any
development, occurrence or state of facts or circumstances known to CBH that
could, singly or in the aggregate, reasonably be expected to result in a CBH
Material Adverse Effect; and (v) there has been no material change by CBH or
Erye in its accounting principles, practices or methods.
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3.18.2 Since December 31, 2007, other than in the ordinary course of
business consistent with past practice, there has not been any increase in the
compensation or other benefits payable, or which could become payable, by CBH,
to its officers or key employees, or any amendment of any of the CBH Employee
Benefit Plans.
3.19 Capitalization.
3.19.1 The authorized capital stock of CBH consists solely of
200,000,000 shares of CBH's common stock, par value $0.01 per share (the "CBH
Common Stock"), and 10,000,000 shares of CBH's preferred stock, par value $0.01
per share, of which 1,152,500 shares are designated as Series A Convertible
Preferred Stock (the "CBH Series A Preferred Stock") and 6,185,607 shares are
designated as Series B Convertible Preferred Stock (the "CBH Series B Preferred
Stock" and together with the CBH Series A Preferred Stock the "CBH Preferred
Stock"). As of October 31, 2008, there were 37,082,313 shares of CBH Common
Stock, and only 50,000 shares of CBH Series A Preferred Stock, all of which were
held by Globus, still outstanding and shall be cancelled pursuant to Section
2.7, and 6,653,656 shares of CBH Series B Preferred Stock outstanding, and no
shares of CBH Common Stock, CBH Series A Preferred Stock or CBH Series B
Preferred Stock were held in CBH's treasury. There have been no issuances of
capital stock of CBH since October 31, 2008. As of October 31, 2008, 10,400,401
shares of CBH Common Stock were issuable upon the exercise of outstanding
warrants (collectively, the "CBH Warrants") in addition to the shares of common
stock issuable upon exercise of outstanding RimAsia CBH Warrants, and no options
to purchase shares of capital stock of CBH were outstanding, no other warrants
or options are outstanding; and no shares of CBH Common Stock are reserved for
issuance for any purpose other than upon exercise of such outstanding CBH
Warrants and RimAsia CBH Warrants. A true and complete list of each CBH Warrant
outstanding as of October 31, 2008 and with respect to each such warrant, the
name of the holder thereof, the number of shares of CBH Common Stock underlying
such CBH Warrant, the exercise price and the expiration date is set forth in the
Registration Statement on Form SB-2 of CBH (File No. 333-132693) initially filed
with the SEC on March 24, 2006, as amended on May 3, 2006, and the Registration
Statement on Form SB-2 of CBH (File No. 333-134727) filed with the SEC on June
5, 2006. Since October 31, 2008, no CBH Warrants or options to purchase shares
of capital stock of CBH have been granted and no agreements or commitments have
been made to grant any CBH Warrants or any options. Except for the foregoing and
the RimAsia CBH Warrants, there are not any existing options, warrants, calls,
subscriptions, or other rights or other agreements or commitments obligating CBH
to issue, transfer or sell any shares of capital stock of CBH or any other
securities convertible into or evidencing the right to subscribe for any such
shares. There are no outstanding stock appreciation rights with respect to the
capital stock of CBH. All issued and outstanding shares of CBH Common Stock and
CBH Preferred Stock are duly authorized and validly issued, fully paid and
nonassessable and have not been issued in violation of (nor are any of the
authorized shares of capital stock of, or other equity interests in, CBH subject
to) any preemptive or similar rights created by statute, the certificate of
incorporation or by-laws of CBH or any agreement to which CBH is a party or by
which it may be bound.
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3.19.2 The authorized capital stock of Erye consists solely of 51%
ownership interest owned by CBH and 49% ownership interest held by EET. There
are not any existing options, warrants, calls, subscriptions, or other rights or
other agreements or commitments obligating Erye to issue, transfer or sell any
equity of Erye or any other securities convertible into or evidencing the right
to subscribe for any such shares. There are no outstanding stock appreciation
rights with respect to the capital of Erye. All issued and outstanding equity of
Erye is duly authorized and validly issued, fully paid and nonassessable and
have not been issued in violation of (nor are any of the authorized shares of
capital stock of, or other equity interests in, Erye subject to) any preemptive
or similar rights created by statute, the certificate of incorporation or
by-laws of Erye or any agreement to which Erye is a party or by which it may be
bound.
3.19.3 Except as set forth in Section 3.19.3 of the CBH Disclosure
Statement, there are no (i) obligations, contingent or otherwise, of CBH or its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of CBH Common
Stock, CBH Preferred Stock or any securities of Erye, or provide funds to, or
make any investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations of, any
other person, or (ii) agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on the revenues or earnings (or any component
thereof), or calculated in accordance therewith, of CBH or any of its
Subsidiaries. Section 3.19.3 of the CBH Disclosure Statement sets forth the
contingent earn-out obligations to which CBH or any of its Subsidiaries is
subject. There are no voting trusts, proxies or other agreements or
understandings to which CBH or its Subsidiaries is a party or by which CBH or
its Subsidiaries is bound with respect to the voting of any shares of capital
stock of CBH.
3.19.4 CBH has delivered or made available to NeoStem complete and
correct copies of each of the CBH Warrants. Section 3.19.4 of the CBH Disclosure
Statement sets forth a complete and correct list of all restricted stock awards
applicable to CBH Common Stock, including the recipients and the number of
shares of CBH Common Stock received or to be received by each.
3.20 Capital Stock of Subsidiaries. The only direct or indirect
Subsidiaries of CBH are those listed in Section 3.20 of the CBH Disclosure
Statement. Except as set forth in Section 3.20 of the CBH Disclosure Statement,
CBH is directly or indirectly the record and beneficial owner of (i) 90% of the
outstanding shares of capital stock of Nanjing Keyuan, 51% of the outstanding
equity interest of Erye and 100% of the outstanding shares of capital stock of
CBC and each of CBH's other Subsidiaries. There are no proxies with respect to
such shares, and there are not any existing options, warrants, calls,
subscriptions, or other rights or other agreements or commitments obligating CBH
or any of such Subsidiaries to issue, transfer or sell any shares of capital
stock of any of such Subsidiaries or any other securities convertible into or
evidencing the right to subscribe for any such shares. Each of the holders of
capital stock of the Subsidiaries which is not wholly-owned, directly or
indirectly, by CBH is set forth on Schedule 3.20. All of such shares so
beneficially owned by CBH are duly authorized and validly issued, fully paid,
nonassessable and free of preemptive rights with respect thereto and are owned
by CBH, directly or indirectly, free and clear of any claim, lien or encumbrance
of any kind with respect thereto. Except as set forth in Section 3.20 of the CBH
Disclosure Statement, CBH does not directly or indirectly own any interest in
any corporation, partnership, limited liability company, joint venture or other
business association or entity.
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3.21 Litigation. Except as set forth in Section 3.21 of the CBH Disclosure
Statement or in the CBH SEC Reports, as of the date hereof there are no material
pending actions, suits, proceedings, arbitrations or, to the knowledge of CBH or
Erye, investigations by, against or affecting CBH, any of its Subsidiaries or
any of their officers, directors, properties, assets or operations, or with
respect to which CBH or any of its Subsidiaries is responsible by way of
indemnity or otherwise. Except as set forth in Section 3.21 of the CBH
Disclosure Statement or the CBH SEC Reports: (i) there are no material pending
or, to the knowledge of CBH or Erye, threatened actions, suits, proceedings,
arbitrations or investigations by, against or affecting CBH, any of its
Subsidiaries or any of their officers, directors, properties, assets or
operations, or with respect to which they are responsible by way of indemnity or
otherwise, whether or not disclosed in such CBH SEC Reports; and (ii) to the
knowledge of CBH or Erye, there are no material actions, suits, proceedings,
arbitrations or investigations are threatened or contemplated and there is no
reasonable basis, to the knowledge of CBH, for any such action, suit,
proceedings, arbitrations or investigation, whether or not threatened or
contemplated.
3.22 Insurance. CBH and Erye have insurance policies and fidelity bonds
covering it and its Subsidiaries' assets, business, equipment, properties,
operations, employees, officers and directors which CBH and Eyre reasonably and
in good faith believes are adequate to conduct the business of CBH and its
Subsidiaries. All premiums due and payable under all such policies and bonds
have been paid, and CBH is otherwise in full compliance with the terms and
conditions of all such policies and bonds, except where the failure to have made
payment or to be in full compliance would not, individually or in the aggregate
with all such other failures, have a CBH Material Adverse Effect. CBH reasonably
believes that the reserves established by CBH and Erye in respect of all matters
as to which CBH or any of its Subsidiaries self-insures or carries retention
and/or deductibles, including without limitation workers' medical coverage and
workers' compensation, are adequate and appropriate, and neither CBH nor Eyre is
aware of any facts or circumstances existing as of the date hereof that would
reasonably be expected to cause such reserves to be materially inadequate or
inappropriate.
3.23 Title to and Condition of Properties. Except as set forth in
Section 3.23 of the CBH Disclosure Statement, CBH and its Subsidiaries have good
title to all of the real property and personal property reflected on CBH's June
30, 2008 unaudited consolidated balance sheet contained in CBH's Quarterly
Report on Form 10-QSB for the quarter ended June 30, 2008 filed with the SEC
(the "CBH Balance Sheet"), except for property since sold or otherwise disposed
of in the ordinary course of business and consistent with past practice and
except for defects of title which are not material to CBH and its Subsidiaries
taken as a whole. Except as set forth in Section 3.23 of the CBH Disclosure
Statement, neither CBH nor any of its Subsidiaries owns any real property. No
real or personal property owned or leased by CBH or any of its Subsidiaries is
subject to claims, liens or other encumbrances of any kind or character,
including, without limitation, mortgages, pledges, liens, conditional sale
agreements, charges, security interests, easements, restrictive covenants,
rights of way or options, except for (i) liens for taxes not yet delinquent or
which are being contested in good faith by appropriate proceedings and in
respect of which CBH or its appropriate Subsidiary has set aside on its books
adequate reserves in accordance with generally accepted accounting principles;
(ii) mechanics', carriers', workers', repairers', materialmen's, landlords' and
other similar statutory or common law liens incurred in the ordinary course of
business for obligations not yet delinquent or the validity of which is being
contested in good faith by appropriate proceedings and in respect of which CBH
or its appropriate Subsidiary has set aside on its books adequate reserves in
accordance with generally accepted accounting principles; (iii) in the case of
real property, easements, rights of way, restrictions, minor defects or
irregularities in title that do not individually or in the aggregate have a
material adverse effect on the value or use of the real property encumbered
thereby as currently used in the operation of the business of CBH or its
Subsidiaries; (iv) those which would not materially interfere with the conduct
of the business of CBH and its Subsidiaries (the encumbrances described in
clauses (i) through (iv) of this sentence, collectively, the "CBH Permitted
Encumbrances"); (v) those securing liabilities reflected in the CBH Balance
Sheet; or (vi) those described in Section 3.23 of the CBH Disclosure Statement.
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3.24 Leases. There have been delivered or made available to NeoStem true
and complete copies of each lease pursuant to which Real Property or personal
property is held under lease by CBH or Erye (limited, in the case of personal
property, to leases pursuant to which annual rentals are reasonably expected to
be at least $100,000 per year), and true and complete copies of each lease
pursuant to which CBH or Erye leases real or personal property to others
(limited in the case of personal property, to leases pursuant to which annual
rentals are reasonably expected to be at least $100,000 per year). Section 3.24
of the CBH Disclosure Statement sets forth a true and complete list of all such
leases, and such leases are the only leases that are material to the business
conducted by CBH or Erye taken as a whole. All of the leases so listed (i) are,
in all material respects, valid and subsisting and in full force and effect with
respect to CBH or Erye, as the case may be, and, to CBH's knowledge, with
respect to any other party thereto and (ii) were entered into as a result of
bona fide arm's length negotiations with the other party or parties thereto. CBH
or Erye have valid leasehold interests in all properties leased thereunder free
and clear of all material liens and encumbrances other than CBH Permitted
Encumbrances. The real properties leased by CBH or Erye are, in all material
respects, in good operating order and condition, subject to ordinary wear and
tear. To the knowledge of CBH and Erye, there are no material structural,
mechanical or other defects in any improvements located on such real properties.
3.25 Contracts and Commitments. Except as set forth in Section 3.25
of the CBH Disclosure Statement or as set forth as an exhibit in a CBH SEC
Report filed since December 31, 2007, neither CBH nor any of its Subsidiaries is
a party to any existing contract, obligation or commitment of any type which
requires payment by or to any party thereto in excess of $50,000. True and
complete copies of all contracts, obligations and commitments listed in Section
3.25 of the CBH Disclosure Statement (translated into English where the
originals are in Chinese) have been delivered or made available to NeoStem. None
of CBH or Erye or, to the knowledge of CBH or Erye, any other party is in breach
of or default under any of the contracts, obligations and commitments listed in
Section 3.25 of the CBH Disclosure Statement or under any other CBH Contracts
(and, to the knowledge of CBH, no facts or circumstances exist which could
reasonably support the assertion of any such breach or default) except for
breaches and defaults which would not, singly or in the aggregate with all other
such breaches, have a CBH Material Adverse Effect. For purposes of this
Agreement, an "Affiliate" of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person, including but not limited to a subsidiary
of the first Person, a Person of which the first Person is a subsidiary, or
another Subsidiary of a Person of which the first Person is also a subsidiary;
and "Control" (including the terms "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a Person, whether through the
ownership of voting securities, by contract or credit arrangement, as trustee or
executor, or otherwise.
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3.26 Employees; Labor Matters. Except as set forth in Section 3.26 of the
CBH Disclosure Statement, neither CBH nor Erye is a party to or bound by any
collective bargaining agreement, and there are no labor unions or other
organizations representing, purporting to represent or attempting to represent
any employees employed by CBH or Erye thereof. Since January 1, 2004, there has
not occurred or been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees of CBH or Erye thereof. Except as set forth in
Section 3.26 of the CBH Disclosure Statement, there are no labor disputes
currently subject to any grievance procedure, arbitration or litigation and
there is no representation petition pending or threatened with respect to any
employee of CBH or any Subsidiary thereof. Each of CBH and Erye has complied
with all applicable laws, statutes, orders, rules, regulations, policies or
guidelines promulgated, or judgments, decisions or orders entered, by any
Governmental Authority (as defined herein) (all such laws, statutes, orders,
rules, regulations, policies, guidelines, judgments, decisions and orders,
collectively, "Applicable Laws") pertaining to the employment or termination of
employment of their respective employees, including, without limitation, all
such Applicable Laws relating to labor relations, equal employment
opportunities, fair employment practices, prohibited discrimination or
distinction and other similar employment activities. Contributions required to
be made by employers under the Applicable Laws to all the mandatory social
welfare and pension funds in respect of all employees of CBH or any Subsidiary
thereof have been duly and punctually paid in full.
3.27 No Change of Control Puts. Except as described in Section 3.27 of the
CBH Disclosure Statement, neither the execution and delivery by CBH of this
Agreement nor the consummation of the Merger or any other transaction
contemplated hereby gives rise to any obligation of CBH or any of its
Subsidiaries to, or any right of any holder of any security of CBH or any of its
Subsidiaries to require CBH or any of its Subsidiaries to, purchase, offer to
purchase, redeem or otherwise prepay or repay any such security, or deposit any
funds to effect the same.
3.28 Employment and Labor Contracts. Except as set forth in Section 3.28
of the CBH Disclosure Statement, neither CBH nor Erye is a party to any
employment, management services, consultation or other contract or agreement
that provides for annual compensation of $50,000 or more, with any past or
present officer, director or employee or, to the knowledge of CBH, any entity
affiliated with any past or present officer, director or employee, other than
the agreements executed by employees generally, the forms of which have been
provided to NeoStem.
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3.29 Intellectual Property Rights. CBH and Erye own or have the right to
use all material CBH Intellectual Property Rights (as defined herein) necessary
to the conduct of their respective businesses. Subject to obtaining any
associated consents with respect to agreements or licenses listed in Section
3.3.2 of the CBH Disclosure Statement, each CBH Intellectual Property Right
owned or used by CBH or Erye immediately prior to the Effective Time will be
owned or available for use, in all material respects, by the Surviving Company
or its subsidiaries on substantially the same terms and conditions immediately
subsequent to the Effective Time. Section 3.29 of the CBH Disclosure Statement
contains a list of all material patents, trade names, registered copyrights,
trademarks and service marks, mask works and applications for the foregoing
owned or used by CBH and Erye. Except as set forth in Section 3.29 of the CBH
Disclosure Statement, (i) CBH or Erye have valid and unencumbered (except for
CBH Permitted Encumbrances) title to the CBH Intellectual Property Rights set
forth in such Section 3.29 and, to the knowledge of CBH or Erye, such title has
not been challenged (pending or threatened) by others except for the
encumbrances listed therein; (ii) no material rights or licenses to use CBH
Intellectual Property Rights have been granted or acquired by CBH or Erye; (iii)
there have been no claims or assertions made by others that CBH and Erye has
infringed any Intellectual Property Rights (as defined herein) of others by the
sale of products, the rendering of services or any other activity since December
31, 2002; (iv) to the knowledge of CBH, there has been no such infringement by
CBH or any of its Subsidiaries since December 31, 2002; (v) CBH and Erye have no
knowledge of any infringement of CBH Intellectual Property Rights of CBH or any
of its Subsidiaries by others; and (vi) all CBH Intellectual Property Rights
owned by CBH or Erye (a) are in good standing with the registration authority
therefor, if any, (b) to the extent recorded on the public record, are recorded
in the name of CBH or Erye and (c) have been duly registered with, filed in or
issued by, as the case may be, the State Intellectual Property Office of the
PRC, the National Copyright Administration of the PRC and Trademark Office of
Stated Administration For Industry & Commerce in the PRC, and the U.S. Patent
and Trademark Office and the U.S. Copyright Office and other filing offices,
domestic or foreign, to the extent necessary or desirable to ensure full
protection under any Applicable Law, and the same remain in full force and
effect. True and complete copies of all material listed in Section 3.29 of the
CBH Disclosure Statement have been delivered or made available to NeoStem. For
purposes of this Agreement, the phrase "Intellectual Property Rights", shall
mean and include, with respect to any Person, rights of such Person relating to
patents, trademarks, service marks, collective marks, certification marks, trade
names, copyrights, mask works, inventions, processes, trade secrets, know-how,
confidentiality agreements, consulting agreements, software and any
documentation relating to the manufacture, marketing, sale, licensing or
maintenance of products or services by such Person; and the phrase "CBH
Intellectual Property Rights" shall mean the Intellectual Property Rights of
each of CBH and Erye, excluding any Intellectual Property Rights held solely by
CBC or Nanjing Keyuan.
-21-
3.30 Taxes.
3.30.1 Except as set forth in Section 3.30 in the CBH Disclosure
Statement, (i) all Returns (as defined herein) required to be filed by, or with
respect to any activities or assets of, each of CBH and its Subsidiaries have
been duly and timely filed and are correct and complete in all material
respects, (ii) all Taxes (as defined herein) shown as owing on such Returns have
been paid and (iii) none of CBH or its Subsidiaries is currently the beneficiary
of any extension of time within which to file any Return.
3.30.2 Except as set forth in Section 3.30 of the CBH Disclosure
Statement, (i) all Taxes that are or may become payable by any of CBH or its
Subsidiaries or chargeable as an Encumbrance (as defined herein) upon its assets
for which the filing of a Return is not required have been duly and timely paid
and (ii) each of CBH and its Subsidiaries has duly and timely withheld all Taxes
required to be withheld in connection with the business or assets of such
entity, and such withheld Taxes have been either duly and timely paid to the
proper governmental authorities or properly set aside in accounts for such
purpose.
3.30.3 Except as set forth in Section 3.30 of the CBH Disclosure
Statement, there has been no claim or issue (other than a claim or issue that
has been finally settled) concerning any liability for Taxes of CBH or any
Subsidiary thereof asserted, raised or threatened by any taxing authority and,
to the knowledge of CBH and its Subsidiaries, no circumstances exist to form the
basis for such a claim or issue.
3.30.4 Section 3.30 of the CBH Disclosure Statement lists all Income
Tax Returns (as defined herein) that have been filed with respect to each of CBH
and its Subsidiaries for taxable periods ended on or after January 1, 2006 and
that have not yet been audited or are currently the subject of audit.
3.30.5 Except as set forth in Section 3.30 of the CBH Disclosure
Statement, none of CBH or its Subsidiaries has (i) waived any statute of
limitations, (ii) agreed to any extension of the period for assessment or
collection or (iii) executed or filed any power of attorney with respect to
Taxes, which waiver, agreement or power of attorney is currently in force.
3.30.6 Except as set forth in Section 3.30 of the CBH Disclosure
Statement, (i) there are no outstanding adjustments for Income Tax (as defined
herein) purposes applicable to CBH or any of its Subsidiaries required as a
result of changes in methods of accounting effected on or before the date of
this Agreement and (ii) no material elections for Income Tax purposes have been
made by any of CBH or its Subsidiaries that are currently in force or by which
any of CBH or its Subsidiaries is bound.
3.30.7 Except as set forth in Section 3.30 of the CBH Disclosure
Statement, none of CBH or its Subsidiaries (i) is a party to or bound by or has
any obligation under any Tax allocation, sharing, indemnity or similar agreement
or arrangement or (ii) is or has been a member of any group of companies filing
a consolidated, combined or unitary Income Tax Return.
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3.30.8 For purposes of this Agreement, the following terms shall
have the meanings ascribed to them below:
(i) "Encumbrance" means any mortgage, pledge, deed of trust,
hypothecation, right of others, claim, security interest, encumbrance, burden,
title defect, title retention agreement, lease, sublease, license, occupancy
agreement, easement, covenant, condition, encroachment, voting trust agreement,
interest, option, right of first offer, negotiation or refusal, proxy, lien,
charge or other restriction or limitations of any nature whatsoever, including
but not limited to such Encumbrances as may arise under any contract.
(ii) "Income Tax" means any Tax computed in whole or in part
based on or by reference to net income and any alternative, minimum, accumulated
earnings or personal holding company Tax (including all interest and penalties
thereon and additions thereto).
(iii) "Income Tax Return" means any return, report,
declaration, form, claim for refund or information return or statement relating
to Income Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
(iv) "Return" means any return, report, declaration, form,
claim for refund or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
(v) "Tax" means any federal, state, local or foreign income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, profits, windfall profits, gross receipts, sales, use, value
added, transfer, registration, stamp, premium, excise, customs duties,
severance, environmental, real property, personal property, ad valorem,
occupancy, license, occupation, employment, payroll, social security,
disability, unemployment, workers' compensation, withholding, estimated or other
similar tax, duty, fee, assessment or other governmental charge or deficiencies
thereof (including all interest and penalties thereon and additions thereto).
3.31 Employee Benefit Plans
3.31.1 Except as set forth in Section 3.31 of the CBH Disclosure
Statement, with respect to any employee or former employee of CBH or any
Subsidiary thereof, none of CBH or Erye, or any Affiliated company presently
maintains, contributes to or has any liability under: (i) any bonus, incentive
compensation, profit sharing, retirement, pension, group insurance, death
benefit, cafeteria, medical expense reimbursement, dependent care, stock option,
stock purchase, stock appreciation rights, deferred compensation, consulting,
severance pay or termination pay, vacation pay, welfare or other employee
benefit or fringe benefit plan, program or arrangement; or (ii) any plan,
program or arrangement which is an employee pension benefit plan, or an
"employee welfare benefit plan" as defined under relevant laws applicable to CBH
or any Subsidiary thereof. Each plan, program and arrangement set forth in
Section 3.31 of the CBH Disclosure Statement is herein referred to as a "CBH
Employee Benefit Plan." The term "affiliated company" means any organization
that would be aggregated with any of CBH or any Subsidiary thereof under Section
414(b), (c), (m) or (o) of the Code.
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3.31.2 There is no pending or threatened legal action, claim,
proceeding or investigation against or involving any CBH Employee Benefit Plan
(other than routine claims for benefits) and there is no basis for any facts
which could give rise to any such condition, legal action, claim, proceeding or
investigation.
3.31.3 None of CBH or Erye nor any of their affiliates is a party to
any employment agreement, whether written or oral, or agreement with change in
control or similar provisions, or a collective bargaining agreement or contract
with any labor union relating to any employees or former employees of CBH or any
Subsidiary thereof.
3.32 Environmental Matters.
3.32.1 Each of CBH and its Subsidiaries has complied and is in
compliance in all material respects with all applicable Environmental Laws (as
defined herein) pertaining to any of the properties and assets of CBH and its
Subsidiaries (including all real property owned by CBH or any of its
Subsidiaries, together with all structures, facilities, improvements, fixtures,
systems, equipment and items of property presently or hereafter located thereon
or attached or appurtenant thereto or owned by CBH or any of its Subsidiaries
and located on real property leased by CBH or any of its Subsidiaries, and all
easements, licenses, rights and appurtenances relating to the foregoing
(collectively, the "CBH Real Property") and the use and ownership thereof, and
to the operation of their respective businesses. No material violation by CBH or
any of its Subsidiaries is being alleged of any applicable Environmental Law
relating to any of the properties and assets of CBH or any of its Subsidiaries
(including the CBH Real Property) or the use or ownership thereof, or to the
operation of their respective businesses.
3.32.2 None of CBH or its Subsidiaries or any other Person
(including any tenant or subtenant) has caused or taken any action that will
result in, nor is CBH or any Subsidiary thereof subject to, any material
liability or obligation on the part of CBH or any Subsidiary thereof or any of
its Affiliates, relating to (x) the environmental conditions on, under, or about
the CBH Real Property or other properties or assets owned, leased, operated or
used by CBH or any of its Subsidiaries or any predecessor thereto at the present
time or in the past, including without limitation, the air, soil and groundwater
conditions at such properties or (y) the past or present use, management,
handling, transport, treatment, generation, storage, disposal or Release (as
defined herein) of any Hazardous (as defined herein) materials.
3.32.2.1 CBH has disclosed and made available to NeoStem all
information, including, without limitation, all studies, analyses and test
results, in the possession, custody or control of or otherwise known to CBH or
its Subsidiaries relating to (x) the environmental conditions on, under or about
the Real Property or other properties or assets owned, leased, operated or used
by CBH or any of its Subsidiaries any predecessor in interest thereto at the
present time or in the past, and (y) any Hazardous materials used, managed,
handled, transported, treated, generated, stored or Released by CBH or any of
its Subsidiaries or any other Person on, under, about or from any of the CBH
Real Property, or otherwise in connection with the use or operation of any of
the properties and assets of CBH or any of its Subsidiaries or their respective
businesses.
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3.32.3 For purposes of this Agreement, the following terms shall
have the meanings ascribed to them below:
3.32.3.1 "Environmental Laws" means all Laws relating to the
protection of the environment, to human health and safety, or to any
Environmental activity, including, without limitation, (a) CERCLA, the Resource
Conservation and Recovery Act, and the Occupational Safety and Health Act, or
any equivalent law under the PRC, including, without limitation, the
Environmental Protection Law of the PRC, the Law of the PRC on Appraising of
Environmental Impacts and the Law of the PRC on Prevention and Control of
Environmental Pollution by Solid Waste, (b) all other requirements pertaining to
reporting, licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous materials into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
distribution, use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous materials and (c) all other requirements pertaining to the
protection of the health and safety of employees or the public.
3.32.3.2 "Hazardous Materials" means any substance that: (a)
is or contains asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum or petroleum-derived substances or wastes, radon as or
related materials (b) requires investigation, removal or remediation under any
Environmental Law, or is defined, listed or identified as a "hazardous waste" or
"hazardous substance" thereunder, or (c) is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is regulated by any Governmental Authority or Environmental Law.
3.32.3.3 "Release" means any releasing, disposing,
discharging, injecting, spilling, leaking, leaching, pumping, dumping, emitting,
escaping, emptying, seeing, dispersal, leeching, migration, transporting,
placing and the like, including without limitation, the moving of any materials
through, into or upon, any land, soil, surface water, ground water or air, or
otherwise entering into the environment.
3.33 CBH Business Matters.
3.33.1 None of CBH, Erye or any director, agent, employee or any
other person acting for or on behalf of CBH or Erye, has directly or indirectly
made any unlawful contribution, gift, bribe, payoff, influence payment,
kickback, or any other fraudulent payment in any form, whether in money,
property, or services to any person, including but not limited to any staff
member at any hospital or center for disease control or any government officer
(a) to obtain favorable treatment in securing business for CBH or Erye, (b) to
pay for favorable treatment for business secured, (c) to obtain special
concessions or for special concessions already obtained, for or in respect of
CBH or Erye, or (d) in violation of any applicable anti-corruption law.
3.33.2 None of CBH, Erye or any director, agent, employee or any
other person acting for or on behalf of CBH or Erye, has established or
maintained any fund or assets in which such Group Company has proprietary rights
that have not been recorded in the books and records of CBH or Erye. Each
transaction is properly and accurately recorded in all material respects on the
books and records of CBH or Erye, and each document upon which entries such
books and records are based is complete and accurate in all material respects.
Each of CBH and Erye maintains a system of internal accounting controls
reasonably designed to insure that there is no maintain no off-the-books
accounts and its assets are used only in accordance with its corporate
management directives.
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3.33.3 Section 3.33.3 of the CBH Disclosure Agreement sets forth all
the land, buildings and premises currently owned by Erye (the "Owned Real
Property"). The description of the Owned Real Property as set forth in Section
3.33.3 of the CBH Disclosure Statement is true and complete.
3.33.4 Erye has exclusive and unfettered possession, occupation and
proper legal title to the land use rights and building ownership rights in
respect of the Owned Real Property (including possession of the land use rights
certificates and building ownerships certificates) and are, subject to
compliance with applicable laws of the PRC, entitled to transfer, sell, mortgage
or otherwise dispose of the Owned Real Property and there are no occupancy
rights or liens in favour of third parties affecting it.
3.33.5 The original land grant fee for the land use rights was paid
in full, and no further amounts are currently owed in respect thereof. No other
fees or other payments are owed in respect of the Owned Real Property including
in respect of the relocation of Erye to the site previously disclosed to NeoStem
by CBH. The relevant granted land use right contracts and the relevant land
registration cards contain no restrictions on Erye's use of the Owned Real
Property for which such land use rights have been granted.
3.33.6 There are no claims pending or, to CBH and Erye's knowledge,
threatened that would result in the creation of any lien on any Owned Real
Property.
3.33.7 There are no zoning or other applicable laws or regulations
currently in effect that would prevent or limit Erye from conducting its
operations on the Owned Real Property as they are currently conducted or
contemplated to be conducted.
3.33.8 There are not material assets or properties shared with any
other entity, which are used in connection with the business conducted by Erye,
and all of the facilities, services, assets or properties owned by Erye are
sufficient to conduct its business as proposed to be conducted.
With respect to the relocation of Erye's workshop, Erye has all approvals and
certificates necessary for the title to and legal use of the building which is
under construction on the date of this Agreement. CBH intends for Erye to
relocate its workshop to the completed building, which shall ensure optimum
operation and production of Erye, on or about December 31, 2011.
3.34 Disclosure. All information disclosed by or on behalf of CBH or its
Subsidiaries to NeoStem or its advisers on or prior to the date hereof is true
and accurate in all material aspects, and CBH and its Subsidiaries are not aware
of any other fact or matter which renders any such information misleading
because of any omission, ambiguity or for any other reason. All information
contained in the CBH Disclosure Statement is true and accurate in all aspects
and fairly presented and there is no fact or matter which has not been disclosed
in the CBH Disclosure Statement which renders any such information untrue or
misleading and there is no fact or matter concerning CBH or its Subsidiaries
which has not on the basis of the utmost good faith been disclosed in the CBH
Disclosure Statement which would reasonably be expected to influence the
decision of NeoStem to proceed with the Merger on the terms and conditions
thereof.
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ARTICLE IV.
REPRESENTATION AND WARRANTIES OF NEOSTEM AND SUBCO
Except as set forth in the disclosure statement delivered by NeoStem
to CBH at or prior to the execution of this Agreement (the "NeoStem Disclosure
Statement") (each section of which qualifies the correspondingly numbered
representation and warranty, regardless of whether such representation or
warranty expressly refers to or is qualified by reference to such NeoStem
Disclosure Statement) or as disclosed in the NeoStem SEC Reports, NeoStem and
Subco, jointly and severally, represent and warrant to CBH as follows (it being
understood and agreed that each representation and warranty with respect to any
payment obligation of NeoStem that is qualified hereunder as to materiality,
shall refer to any such obligation (i) having a dollar value of more than
$50,000, to the extent such value is quantifiable, and (ii) not made or incurred
in the ordinary course of business):
4.1 Organization and Qualification.
4.1.1 Each of NeoStem and its Subsidiaries (as defined in Section
4.1.2) is an entity duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the NeoStem SEC Reports (as defined herein). Each of
NeoStem and each of NeoStem's Subsidiaries is duly qualified to transact
business as a foreign corporation or other foreign entity and is in good
standing in each jurisdiction in which the conduct of its business or the
ownership, leasing or operation of its property requires such qualification,
except for failures to be so qualified or in good standing which would not,
singly or in the aggregate with all such other failures, have a NeoStem Material
Adverse Effect. "NeoStem Material Adverse Effect" means, with respect to any
event, occurrence, matter, failure of event or occurrence, change, effect, state
of affairs, breach, default, violation, fine, penalty or failure to comply
(each, a "Circumstance"), individually or taken together with all other
Circumstances contemplated by or in connection with any or all of the
representations and warranties made in this Agreement, a material adverse effect
on the business, assets (including without limitation intangible assets),
liabilities (contingent or otherwise), financial condition, results of
operations or prospects of NeoStem and its Subsidiaries, taken as a whole;
provided, however, that NeoStem Material Adverse Effect shall not be deemed to
include the impact of: (A) the implementation of changes in U.S. generally
accepted accounting principles; (B) actions and omissions of NeoStem or its
Subsidiaries taken or permitted with the prior written consent of CBH after the
date hereof; (C) expenses reasonably incurred by NeoStem or its Subsidiaries in
consummating the transactions contemplated by this Agreement; (D) changes in the
general economic or financial market conditions; (E) any occurrence, condition,
change, event or effect that affects the stem cell industry generally; and (F)
the outbreak or escalation of hostilities involving the PRC or the United
States, the declaration by the PRC or the United States of war or the occurrence
of any natural disasters and acts of terrorism.
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4.1.2 Neither NeoStem nor any of its Subsidiaries is in violation of
any of the provisions of its certificate of incorporation or by-laws, or other
similar organizational documents, each as amended and currently in effect, or,
if it is a limited liability company or partnership, its operating agreement,
partnership agreement or other comparable agreement. True and complete copies of
the certificate of incorporation and by-laws, each as amended and as currently
in effect, of NeoStem and true and complete copies of the certificate of
incorporation and by-laws, or other similar organizational documents, each as
amended and currently in effect, of each Subsidiary of NeoStem have been
previously delivered or made available to CBH. Except for an amendment to the
certificate of incorporation to increase the number of shares of NeoStem
Preferred Stock authorized for issuance by NeoStem in order to consummate the
transactions contemplated by this Agreement, which may be authorized by the
NeoStem Board of Directors, subject to the approval of the NeoStem Stockholders
at the NeoStem Annual Meeting, no amendments to the certificate of
incorporation, as amended, of NeoStem have been authorized since August 8, 2007,
and no amendments to the by-laws of NeoStem have been authorized since August 1,
2006. For purposes of this Agreement, all references to the "Subsidiaries" of
NeoStem shall constitute references to any entity (i) the accounts of which
would be consolidated with those of NeoStem in NeoStem's consolidated financial
statements if such financial statements were prepared in accordance with
generally accepted accounting principles or (ii) of which securities or other
ownership interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests or more than 50% of the profits or losses are
owned by NeoStem and/or one or more subsidiaries of NeoStem.
4.2 Authority Relative to this Agreement. Each of NeoStem and Subco has
the corporate power and authority to execute and deliver this Agreement and,
upon obtaining the approval of a majority of the outstanding shares of NeoStem
Common Stock at the NeoStem Annual Meeting or any adjournment thereof as
authorized under the DGCL, to consummate the Merger and the other transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby have
been duly and validly authorized by the Boards of Directors of NeoStem and
Subco, and except as stated in the preceding sentence, no other corporate
proceedings on the part of NeoStem or Subco are necessary to authorize this
Agreement or to consummate the Merger and the other transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
NeoStem and Subco and, assuming the due authorization, execution and delivery
hereof by CBH and subject to stockholder approval as aforesaid, constitutes a
valid and binding agreement of each of NeoStem and Subco, enforceable against
NeoStem and Subco in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
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4.3 Consents, No Conflicts.
4.3.1 Except for actions to be taken in connection with (a) the
filing of the Certificate of Merger (including the increase in the preferred
stock), (b) the filing and effectiveness of the Registration Statement and/or
Joint Proxy Statement and shareholder approval thereunder, (c) filings required
pursuant to any state securities or "blue sky" laws, (d) filings, approvals for
listing and other matters relating to the listing or quoting on an Exchange of
the shares of NeoStem Common Stock required to be issued pursuant to this
Agreement, and (e) any other filings, notices, disclosures or registrations set
forth in Section 4.3.1 of the NeoStem Disclosure Statement, no filing or
registration with, notification or disclosure to, or permit, authorization,
consent or approval of, (x) any Government Authority or (y) any third party,
whether acting in an individual, fiduciary or other capacity, is required for
the consummation by NeoStem or Subco of the Merger or the other transactions
contemplated hereby.
4.3.2 Except as set forth in Section 4.3.2 of the NeoStem Disclosure
Statement, the execution, delivery and performance of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby and
compliance by NeoStem and Subco with any of the provisions hereof do not and
will not: (i) subject to obtaining the approval of the Merger by holders of the
NeoStem Common Stock and the NeoStem Preferred Stock, conflict with or result in
any breach or violation of any provision of the certificate of incorporation or
by-laws, or other similar organizational documents, each as amended, of NeoStem
or any of its Subsidiaries or (ii) result in (1) a breach or violation of, a
default under or an event triggering any payment, obligation or acceleration of
any obligation pursuant to any NeoStem Employee Benefit Plan (as defined herein)
or any grant or award made under any of the foregoing, (2) a breach or violation
of, a default under or an event triggering a right of termination of, a default
under, or the acceleration of any obligation or the creation of a lien, pledge,
security interest or other encumbrance on assets (with or without the giving of
notice or the lapse of time or both) pursuant to any provision of, any
agreement, lease of real or personal property, marketing agreement, contract,
note, mortgage, indenture or other obligation of NeoStem or any of its
Subsidiaries ("NeoStem Contracts") or, subject to making all filings,
notifications and disclosures and receipt of all permits, authorizations,
consents and approvals referred to in clauses "a" through "e" of Section 4.3.1
or in Section 4.3.1 of the NeoStem Disclosure Statement, any law, rule,
ordinance or regulation or judgment, decree, order or award to which NeoStem or
any of its Subsidiaries is subject or any governmental or non-governmental
authorization, consent, approval, registration, franchise, license or permit
under which NeoStem or any of its Subsidiaries conducts any of its business, or
(3) any other change in the rights or obligations of any party under any of the
NeoStem Contracts, except, with respect to this clause (ii), for breaches,
violations, defaults, triggering events, creations of liens, pledges, security
interests or other encumbrances on assets, or changes in rights or obligations
which would not, singly or in the aggregate with all other such matters, have a
NeoStem Material Adverse Effect.
5.3.3 As of the date of execution of this Agreement, NeoStem has not
received any de-listing notice from the Exchange on which the NeoStem Common
Stock is listed or quoted with respect to its Common Stock.
4.4 Board Recommendation. The Board of Directors or an appropriate
committee of the Board of Directors of NeoStem has, by a unanimous vote of those
directors in attendance at a meeting of such Board or committee duly held on
October 31, 2008 approved and adopted this Agreement, the Merger and the other
transactions contemplated hereby. At such meeting, the Board of Directors of
NeoStem or board committee determined that the terms of the Merger are fair to
the holders of NeoStem Common Stock and recommended that the holders of such
shares approve and adopt this Agreement, the Merger, the issuance of the NeoStem
Common Stock pursuant to this Agreement and the other transactions contemplated
hereby (the "NeoStem Board Recommendation").
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4.5 State Anti-takeover Statutes; Stockholder Protection Rights
Agreements. Other than the CBH Lock-Up and Voting Agreement, the NeoStem Lock-Up
and Voting Agreement (as defined herein) and the Confidentiality Agreements (as
defined herein), there are no contracts between NeoStem or Subco, on the one
hand, and any member of CBH's management or directors, on the other hand, as of
the date hereof that relate in any way to CBH or the transactions contemplated
by this Agreement. Prior to the Board of Directors of CBH approving this
Agreement, the Merger and the other transactions contemplated hereby for
purposes of the applicable provisions of the DGCL, neither NeoStem nor Subco,
alone or together with any other person, was at any time, or became, an
"interested stockholder" thereunder or has taken any action that would cause the
restrictions on business combinations with interested stockholders set forth in
Section 203 of the DGCL to be applicable to this Agreement, the Merger, or any
transactions contemplated by this Agreement. NeoStem is not a party to any
stockholder protection rights agreement or any agreement similar thereto.
4.6 No Existing Violation, Default, Etc. None of NeoStem or its
Subsidiaries is in violation of (A) any Applicable Law or (B) any order, decree
or judgment of any Governmental Authority having jurisdiction over NeoStem or
any of its Subsidiaries. No event of default or event that, but for the giving
of notice or the lapse of time or both, would constitute an event of default,
exists under any material NeoStem Contract or any material lease, permit,
license or other agreement or instrument to which NeoStem or any of its
Subsidiaries is a party or by which any of them is bound or to which any of the
properties, assets or operations of NeoStem or any of its Subsidiaries is
subject.
4.7 Licenses and Permits. Each of NeoStem and its Subsidiaries has such
certificates, permits, licenses, franchises, consents, approvals, orders,
authorizations and clearances from appropriate governmental agencies and bodies
("NeoStem Licenses") as are necessary to own, lease or operate its properties
and to conduct its business in the manner described in the NeoStem SEC Reports
and as presently conducted and all such NeoStem Licenses are valid and in full
force and effect, other than any failure to have any such NeoStem License or any
failure of any such NeoStem License to be valid and in full force and effect as
would not, singly or in the aggregate with all such other failures, have a
NeoStem Material Adverse Effect. NeoStem and its Subsidiaries do not currently
participate in any Medicaid program. Each of NeoStem and its Subsidiaries is
and, within the period of all applicable statutes of limitations, has been in
compliance with its obligations under such NeoStem Licenses and no event has
occurred that allows, or after notice or lapse of time would allow, revocation
or termination of such NeoStem Licenses, other than any such failure to be in
compliance with such obligations or any such revocation or termination as would
not, singly or in the aggregate with all such other failures, revocations or
terminations, have a NeoStem Material Adverse Effect. Except as set forth in
Section 4.7 of the NeoStem Disclosure Statement, NeoStem has no knowledge of any
facts or circumstances that could reasonably be expected to result in an
inability of NeoStem or any of its Subsidiaries to renew any material NeoStem
License. Subject to making all filings, notifications and disclosures and
receipt of all permits, authorizations, consents and approvals referred to in
Section 4.3.1 of the NeoStem Disclosure Statement, neither the execution and
delivery by NeoStem or Subco of this Agreement nor the consummation of any of
the transactions contemplated herein will result in any revocation or
termination of any material NeoStem License.
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4.8 Registration Statement; Prospectus/Joint Proxy Statement. None of the
information supplied or to be supplied by NeoStem for inclusion in, and none of
the information regarding NeoStem and its Subsidiaries incorporated by reference
in, the Registration Statement or the Prospectus/Joint Proxy Statement,
including all amendments and supplements thereto, shall, in the case of the
Registration Statement, at the time the Registration Statement becomes
effective, and, in the case of the Prospectus/Joint Proxy Statement, on the date
or dates the Prospectus/Joint Proxy Statement is first mailed to NeoStem and CBH
stockholders and on the date or dates of the NeoStem Annual Meeting and the CBH
Special Meeting, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Registration Statement and the Prospectus/Joint
Proxy Statement will comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act, as the case
may be.
4.9 Finders or Brokers; Compensation Arrangements. Except as provided in
Section 4.9 of the NeoStem Disclosure Statement, neither NeoStem nor any
Subsidiary of NeoStem has employed any investment banker, broker, finder or
intermediary in connection with the transactions contemplated hereby who might
be entitled to a fee or any commission the receipt of which is conditioned in
whole or part upon consummation of the Merger.
4.10 SEC Reports. NeoStem has filed all forms, reports and documents
required to be filed by it with the SEC since December 31, 2007 (the "NeoStem
Audit Date") (including, without limitation, NeoStem's Annual Report on Form
10-K for the year ended December 31, 2007 filed with the SEC on March 28, 2008,
as amended by Amendment No. 1 to the Annual Report on Form 10-K/A filed with the
SEC on April 29, 2008, and NeoStem's Quarterly Report on Forms 10-Q for the
quarters ended March 31 and June 30, 2008 and all certifications and statements
required by Rule 13a-14 or 15d-14 under the Exchange Act or 18 U.S.C. Section
1350 (Section 906 of SOX) with respect to any Annual Reports or Proxy
Statements, and Current Reports on Form 8-K), pursuant to the federal securities
laws and the SEC's rules and regulations thereunder, and SOX and all rules and
regulations thereunder (collectively, and together with all forms, reports and
documents filed by NeoStem with the SEC after December 31, 2007, including any
amendments thereto, the "NeoStem SEC Reports"). Except as set forth in Section
4.10 of the NeoStem Disclosure Statement, NeoStem SEC Reports were or will, as
applicable, be prepared in accordance with the requirements of the Securities
Act and the Exchange Act, as the case may be, and the rules and regulations
thereunder. As of their respective dates, none of NeoStem SEC Reports,
including, without limitation, any financial statements or schedules included
therein, contained or will contain, as applicable, any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were or are made, as applicable, made, not
misleading. No Subsidiary of NeoStem is or has been required to file any form,
report, registration statement or other document with the SEC.
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4.11 Disclosure Controls and Procedures. NeoStem maintains disclosure
controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange
Act. Such controls and procedures are effective to ensure that all material
information concerning NeoStem and its Subsidiaries is made known on a timely
basis to the individuals responsible for the preparation of NeoStem's filings
with the SEC and other public disclosure documents. As used in this Section
4.11, the term "file" shall be broadly construed to include any manner in which
a document or information is furnished, supplied or otherwise made available to
the SEC.
4.12 Financial Statements. Except as set forth in Section 4.12 of the
NeoStem Disclosure Statement, the consolidated balance sheets and the related
consolidated statements of income and cash flows (including the related notes
thereto) of NeoStem included in NeoStem SEC Reports, as of their respective
dates, complied in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise noted
therein), and present fairly in all material respects, the consolidated
financial position of NeoStem and its consolidated Subsidiaries as of their
respective dates, and the consolidated results of their operations and their
cash flows for the periods presented therein (subject, in the case of the
unaudited interim financial statements, to notes and normal year-end adjustments
that were not material in amount or effect).
4.13 SOX Certifications. The Chief Executive Officer and the Chief
Financial Officer of NeoStem have signed, and NeoStem has furnished to the SEC,
all certifications required by Sections 302 and 906 of SOX. Such certifications
contain no qualifications or exceptions to the matters certified therein and
have not been modified or withdrawn. Neither NeoStem nor any of it officers has
received notice from any Governmental Authority questioning or challenging the
accuracy, completeness, form or manner of filing or submission of such
certifications.
4.14 Undisclosed Liabilities. Except (i) as reflected in NeoStem's
unaudited consolidated balance sheet at June 30, 2008 or liabilities described
in any notes thereto, (ii) for liabilities incurred in the ordinary course of
business since June 30, 2008 consistent with past practice or in connection with
this Agreement or the transactions contemplated hereby, (iii) performance
obligations under contracts required in accordance with their terms, or
performance obligations, to the extent required under applicable laws, in each
case to the extent arising after the date hereof or (iv) as set forth in Section
4.14 of the NeoStem Disclosure Statement, neither NeoStem nor any of its
Subsidiaries has any material liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) and which, individually or in the
aggregate, could reasonably be expected to have a Company Material Adverse
Effect.
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4.15 Off-Balance Sheet Arrangements. NeoStem and its Subsidiaries have not
effected any securitization transactions or "off-balance sheet arrangements" (as
defined in Item 303(c) of Regulation S-K of the SEC) since the NeoStem Audit
Date. NeoStem has delivered or made available to CBH copies of the documentation
creating or governing any such securitization transactions and off-balance sheet
arrangements.
4.16 Loans to Executives and Directors. NeoStem has not, since the
effective date of SOX, extended or maintained credit, arranged for the extension
of credit, or renewed an extension of credit, in the form of a personal loan to
or for any director or executive officer (or equivalent thereof) of NeoStem in
violation of SOX. NeoStem has not made any loan or extension of credit to which
the second sentence of Section 13(k)(I) of the Exchange Act applies.
4.17 Independent Auditors. Holtz Rubenstein Reminick LLP serves as
NeoStem's independent registered public accounting firm and to NeoStem's
knowledge, there are no relationships or services, or any other factors that may
affect the objectivity and independence of Holtz Rubenstein Reminick LLP under
applicable auditing standards. Holtz Rubenstein Reminick LLP has not performed
any non-audit services for NeoStem and its Subsidiaries since the NeoStem Audit
Date, which, in any such case, were required to be disclosed in NeoStem SEC
Reports and were not so disclosed.
4.18 Absence of Changes or Events. Except for (a) matters publicly
disclosed by NeoStem prior to the date hereof in NeoStem SEC Reports filed prior
to the date hereof, (b) matters disclosed in Section 4.18 of the NeoStem
Disclosure Statement and (c) matters disclosed in Section 4.21 of the NeoStem
Disclosure Statement:
4.18.1 Since December 31, 2007: (i) NeoStem and its Subsidiaries
have conducted their business in the ordinary course and have not entered into
any material oral or written agreement or other material transaction that is not
in the ordinary course of business (other than this Agreement) or that could
reasonably be expected to result in a NeoStem Material Adverse Effect; (ii)
neither NeoStem nor any of its Subsidiaries have sustained any material loss or
interference with their business or properties from fire, flood, windstorm,
accident, strike or other calamity (whether or not covered by insurance); (iii)
there has been no material change in the indebtedness of NeoStem and its
Subsidiaries, no change in the capital stock of NeoStem and no dividend or
distribution of any kind declared, paid or made by NeoStem on any class of its
capital stock; (iv) there has been no event or condition which has caused a
NeoStem Material Adverse Effect, nor any development, occurrence or state of
facts or circumstances known to NeoStem that could, singly or in the aggregate,
reasonably be expected to result in a NeoStem Material Adverse Effect; and (v)
there has been no material change by NeoStem in its accounting principles,
practices or methods.
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4.18.2 Since December 31, 2007, other than in the ordinary course of
business consistent with past practice or as disclosed in the NeoStem SEC
Reports, there has not been any increase in the compensation or other benefits
payable, or which could become payable, by NeoStem, to its officers or key
employees, or any amendment of any of the NeoStem Employee Benefit Plans.
4.19 Capitalization.
4.19.1 Subject to Section 4.19.1 of the NeoStem Disclosure
Statement, the authorized capital stock of NeoStem consists solely of
500,000,000 shares of common stock, par value $0.001 per share (the "NeoStem
Common Stock"), and 5,000,000 shares of preferred stock, without par value (the
"NeoStem Preferred Stock"), of which 825,000 shares are designated as Series B
Convertible Preferred Stock ("NeoStem Series B Preferred Stock"). As of October
31, 2008, there were 7,315,006 shares of NeoStem Common Stock and 10,000 shares
of NeoStem Series B Preferred Stock outstanding; and no shares of NeoStem Common
Stock or shares of NeoStem Series B Preferred Stock held in NeoStem's treasury.
As of October 31, 2008, 6,716,297 shares of NeoStem Common Stock were reserved
for issuance upon the exercise or conversion of outstanding options, warrants or
convertible securities granted or issuable by NeoStem. Except for the foregoing,
as disclosed in the NeoStem SEC Documents or as set forth below, there are not
any existing options, warrants, calls, subscriptions, or other rights or other
agreements or commitments obligating NeoStem to issue, transfer or sell any
shares of capital stock of NeoStem or any other securities convertible into or
evidencing the right to subscribe for any such shares; provided, however, that
(i) any and all outstanding options to purchase shares of NeoStem Common Stock
and/or warrants to purchase shares of NeoStem Common immediately prior to the
Closing, may be amended, canceled and reissued, or otherwise modified by
NeoStem's Board of Directors (or an appropriate committee thereof) so that the
exercise price of each such option and/or warrant shall be as set forth in
Section 4.19 of the NeoStem Disclosure Statement; and (ii) simultaneously with
the Closing, any and all outstanding options to purchase shares of NeoStem
Common Stock held by employees, officers, directors or consultants providing
services to NeoStem immediately prior to the Closing shall be amended so that
vesting is based on the achievement of certain milestones. There are no
outstanding stock appreciation rights with respect to the capital stock of
NeoStem. As of the date hereof, except for (a) stock options issuable pursuant
to stock option plans adopted or assumed by NeoStem, (b) shares of NeoStem
Common Stock issuable pursuant to other NeoStem Employee Benefit Plans disclosed
in NeoStem SEC Reports, (c) securities issuable in connection with business
combinations disclosed in NeoStem SEC Reports, (d) matters described in Section
4.18 of the NeoStem Disclosure Statement and (e) matters described in this
Section 4.19, NeoStem is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of NeoStem Common Stock or NeoStem Preferred
Stock or any other equity securities of NeoStem or any securities representing
the right to purchase or otherwise receive any shares of NeoStem Common Stock or
NeoStem Preferred Stock or any other equity securities of NeoStem.
4.19.2 Except as set forth in Section 4.19.2 of the NeoStem
Disclosure Statement, there are no (i) obligations, contingent or otherwise, of
NeoStem or its Subsidiaries to repurchase, redeem or otherwise acquire any
shares of NeoStem Common Stock or provide funds to, or make any investment in
(in the form of a loan, capital contribution or otherwise), or provide any
guarantee with respect to the obligations of, any other person, or (ii)
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on the revenues or earnings (or any component thereof), or
calculated in accordance therewith, of NeoStem or any of its Subsidiaries. There
are no voting trusts, proxies or other agreements or understandings to which
NeoStem is a party or by which NeoStem is bound with respect to the voting of
any shares of capital stock of NeoStem.
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4.19.3 NeoStem has delivered or made available to CBH complete and
correct copies of each stock option plan adopted or assumed by NeoStem as of the
date hereof and the form of equity compensation plan currently under
consideration as a proposal for adoption at the NeoStem Annual Meeting(the
"Equity Compensation Plan").
4.19.4 Each outstanding share of NeoStem Common Stock and NeoStem
Preferred Stock is, and all shares of NeoStem Common Stock and NeoStem Series C
Preferred Stock to be issued in connection with the transactions contemplated
hereby will be, duly authorized and validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and each outstanding share of NeoStem Common Stock and NeoStem Preferred Stock
has not been, and all shares of NeoStem Common Stock and NeoStem Series C
Preferred Stock to be issued in connection with the transactions contemplated
hereby will not be, subject to or issued in violation of any preemptive or
similar rights.
4.20 Capital Stock of Subsidiaries. The only direct or indirect
Subsidiaries of NeoStem are those listed in Section 4.20 of the NeoStem
Disclosure Statement. NeoStem is directly or indirectly the record and
beneficial owner of all of the outstanding shares of capital stock of each of
its Subsidiaries, there are no proxies with respect to such shares, and there
are not any existing options, warrants, calls, subscriptions, or other rights or
other agreements or commitments obligating NeoStem or any of such Subsidiaries
to issue, transfer or sell any shares of capital stock of any of such
Subsidiaries or any other securities convertible into or evidencing the right to
subscribe for any such shares. All of such shares so beneficially owned by
NeoStem are duly authorized and validly issued, fully paid, nonassessable and
free of preemptive rights with respect thereto and are owned by NeoStem,
directly or indirectly, free and clear of any claim, lien or encumbrance of any
kind with respect thereto. Except as set forth in Section 4.20 of the NeoStem
Disclosure Statement, NeoStem does not directly or indirectly own any interest
in any corporation, partnership, limited liability company, joint venture or
other business association or entity.
4.21 Litigation. Except as set forth in Section 4.21 of the NeoStem
Disclosure Statement or in the NeoStem SEC Reports, as of the date hereof there
are no material pending actions, suits, proceedings or, to the knowledge of
NeoStem, investigations by, against or affecting NeoStem, any of its
Subsidiaries or any of their properties, assets or operations, or with respect
to which NeoStem or any of its Subsidiaries is responsible by way of indemnity
or otherwise. Except as set forth in Section 4.21 of the NeoStem Disclosure
Statement or the NeoStem SEC Reports: (i) no material pending or, to the
knowledge of NeoStem, threatened actions, suits, proceedings or investigations
by, against or affecting NeoStem, any of its Subsidiaries or any of their
properties, assets or operations, or with respect to which they are responsible
by way of indemnity or otherwise, whether or not disclosed in such NeoStem SEC
Reports, would, singly or in the aggregate with all such other actions, suits,
investigations or proceedings, reasonably be expected to have a NeoStem Material
Adverse Effect; and (ii) to the knowledge of NeoStem, there are no material
actions, suits, proceedings or investigations and there is no reasonable basis,
to the knowledge of NeoStem, for any action, suit, proceeding or investigation,
whether or not threatened or contemplated.
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4.22 Insurance. NeoStem and its Subsidiaries have insurance policies
covering it and its Subsidiaries' assets, business, equipment, properties,
operations, employees, officers and directors which NeoStem reasonably and in
good faith believes are adequate to conduct the business of NeoStem and its
Subsidiaries. All premiums due and payable under all such policies have been
paid, and NeoStem is otherwise in full compliance with the terms and conditions
of all such policies, except where the failure to have made payment or to be in
full compliance would not, individually or in the aggregate with all such other
failures, have a NeoStem Material Adverse Effect. NeoStem reasonably believes
that the reserves established by NeoStem and its Subsidiaries in respect of all
matters as to which NeoStem or any of its Subsidiaries self-insures or carries
retention and/or deductibles, including without limitation workers' medical
coverage and workers' compensation, are adequate and appropriate, and NeoStem is
not aware of any facts or circumstances existing as of the date hereof that
would reasonably be expected to cause such reserves to be materially inadequate
or inappropriate.
4.23 Title to and Condition of Properties. NeoStem and its Subsidiaries
have good title to all of the real property and personal property reflected on
NeoStem's June 30, 2008 unaudited consolidated balance sheet contained in
NeoStem's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008
filed with the SEC (the "NeoStem Balance Sheet"), except for property since sold
or otherwise disposed of in the ordinary course of business and consistent with
past practice and except for defects of title which are not material to NeoStem
and its Subsidiaries taken as a whole. Neither NeoStem nor any of its
Subsidiaries owns any material real property. Except as set forth in Section
4.23 of the NeoStem Disclosure Statement, no real or personal property owned or
leased by NeoStem or any of its Subsidiaries is subject to claims, liens or
other encumbrances of any kind or character, including, without limitation,
mortgages, pledges, liens, conditional sale agreements, charges, security
interests, easements, restrictive covenants, rights of way or options, except
for (i) liens for taxes not yet delinquent or which are being contested in good
faith by appropriate proceedings and in respect of which NeoStem or its
appropriate Subsidiary has set aside on its books adequate reserves in
accordance with generally accepted accounting principles; (ii) mechanics',
carriers', workers', repairers', materialmen's, landlords' and other similar
statutory or common law liens incurred in the ordinary course of business for
obligations not yet delinquent or the validity of which is being contested in
good faith by appropriate proceedings and in respect of which NeoStem or its
appropriate Subsidiary has set aside on its books adequate reserves in
accordance with generally accepted accounting principles; (iii) in the case of
real property, easements, rights of way, restrictions, minor defects or
irregularities in title that do not individually or in the aggregate have a
material adverse effect on the value or use of the real property encumbered
thereby as currently used in the operation of the business of NeoStem or its
Subsidiaries; (iv) those which would not materially interfere with the conduct
of the business of NeoStem and its Subsidiaries (the encumbrances described in
clauses (i) through (iv) of this sentence, collectively, the "NeoStem Permitted
Encumbrances"); (v) those securing liabilities reflected in the NeoStem Balance
Sheet; or (vi) those described in Section 4.23 of the NeoStem Disclosure
Statement.
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4.24 Leases. There have been delivered or made available to CBH true and
complete copies of each lease pursuant to which Real Property or personal
property is held under lease by NeoStem or any of its Subsidiaries (limited, in
the case of personal property, to leases pursuant to which annual rentals are
reasonably expected to be at least $100,000 per year), and true and complete
copies of each lease pursuant to which NeoStem or any of its Subsidiaries leases
real or personal property to others (limited in the case of personal property,
to leases pursuant to which annual rentals are reasonably expected to be at
least $100,000 per year). Section 4.24 of the NeoStem Disclosure Statement sets
forth a true and complete list of all such leases, and such leases are the only
leases that are material to the business conducted by NeoStem and its
Subsidiaries taken as a whole. All of the leases so listed (i) are, in all
material respects, valid and subsisting and in full force and effect with
respect to NeoStem and its Subsidiaries, as the case may be, and, to NeoStem's
knowledge, with respect to any other party thereto and (ii) were entered into as
a result of bona fide arm's length negotiations with the other party or parties
thereto. NeoStem or its Subsidiaries, as the case may be, have valid leasehold
interests in all properties leased thereunder free and clear of all material
liens and encumbrances other than NeoStem Permitted Encumbrances. The real
properties leased by NeoStem and its Subsidiaries are, in all material respects,
in good operating order and condition, subject to ordinary wear and tear. To
NeoStem's knowledge, there are no material structural, mechanical or other
defects in any improvements located on such real properties.
4.25 Contracts and Commitments. Except as set forth in Section 4.25 of the
NeoStem Disclosure Statement, as described in a NeoStem SEC Report or as set
forth as an exhibit in a NeoStem SEC Report, neither NeoStem nor any of its
Subsidiaries is a party to any existing contract, obligation or commitment of
any type in any of the following categories:
4.25.1 contracts for the purchase by NeoStem or any of its
Subsidiaries of medicines, materials, supplies or equipment which are not
cancelable upon 90 days' or less notice and which either (i) have not been
entered into in the ordinary course of business and consistent with past
practice or (ii) provide for purchase prices substantially greater than those
presently prevailing for such materials, supplies or equipment, or (iii)
contracts obligating NeoStem or its Subsidiaries to make capital expenditures in
excess of $50,000;
4.25.2 contracts under which NeoStem or any of its Subsidiaries has,
except by way of endorsement of negotiable instruments for collection in the
ordinary course of business and consistent with past practice, become absolutely
or contingently or otherwise liable for (i) the performance of any other person,
firm or corporation under a contract, or (ii) the whole or any part of the
indebtedness or liabilities of any other person, firm or corporation;
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4.25.3 powers of attorney outstanding from NeoStem or any of its
Subsidiaries other than as issued in the ordinary course of business and
consistent with past practice with respect to customs, insurance, patent,
trademark or tax matters, or to agents for service of process;
4.25.4 contracts under which any amount payable by NeoStem or any of
its Subsidiaries is dependent upon, or calculated in accordance with, the
revenues or earnings (or any component thereof of NeoStem or any of its
Subsidiaries;
4.25.5 contracts with any director, officer, employee or affiliate
of NeoStem or any of its Subsidiaries other than in such person's capacity as a
director, officer or employee of NeoStem or any of its Subsidiaries;
4.25.6 contracts which limit or restrict where NeoStem or any of its
Subsidiaries may conduct its business or the type or line of business in which
NeoStem or any of its Subsidiaries may engage;
4.25.7 contracts with any party for the loan of money or
availability of credit to or from NeoStem or any of its Subsidiaries (except
credit extended by NeoStem or any of its Subsidiaries to its customers in the
ordinary course of business and consistent with past practice);
4.25.8 any material hedging, option, derivative or other similar
transaction; or
4.25.9 any contract with any Governmental Authority or, to NeoStem's
knowledge, any Government Authority contractor, with regard to any product or
service sold or provided by NeoStem.
True and complete copies of all contracts, obligations and commitments listed in
Section 4.25 of the NeoStem Disclosure Statement have been delivered or made
available to CBH. Except as set forth in Section 4.25 of the NeoStem Disclosure
Statement, none of NeoStem or its Subsidiaries or, to the knowledge of NeoStem,
any other party is in breach of or default under any of the contracts,
obligations and commitments listed in Section 4.25 of the NeoStem Disclosure
Statement or under any other NeoStem Contracts (and, to the knowledge of
NeoStem, no facts or circumstances exist which could reasonably support the
assertion of any such breach or default) except for breaches and defaults which
would not, singly or in the aggregate with all other such breaches, have a
NeoStem Material Adverse Effect.
4.26 Employees; Labor Matters. Except as set forth in Section 4.26 of the
NeoStem Disclosure Statement, neither NeoStem nor any Subsidiary thereof is a
party to or bound by any collective bargaining agreement, and there are no labor
unions or other organizations representing, purporting to represent or
attempting to represent any employees employed by NeoStem or any Subsidiary
thereof. Since December 31, 2007, there has not occurred or been threatened any
material strike, slowdown, picketing, work stoppage, concerted refusal to work
overtime or other similar labor activity with respect to any employees of
NeoStem or any Subsidiary thereof. Except as set forth in Section 4.26 of the
NeoStem Disclosure Statement, there are no labor disputes currently subject to
any grievance procedure, arbitration or litigation and there is no
representation petition pending or threatened with respect to any employee of
NeoStem or any Subsidiary thereof. Each of NeoStem and its Subsidiaries has
complied with all Applicable Laws pertaining to the employment or termination of
employment of their respective employees, including, without limitation, all
such Applicable Laws relating to labor relations, equal employment
opportunities, fair employment practices, prohibited discrimination or
distinction and other similar employment activities, except for any failure so
to comply that, individually and in the aggregate, could not result in any
material liability or obligation on the part of NeoStem or any of its
Subsidiaries.
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4.27 Put Rights. Except as described in Section 4.27 of the NeoStem
Disclosure Statement, neither the execution and delivery by NeoStem of this
Agreement nor the consummation of the Merger or any other transaction
contemplated hereby gives rise to any obligation of NeoStem or any of its
Subsidiaries to, or any right of any holder of any security of NeoStem or any of
its Subsidiaries to require NeoStem to, purchase, offer to purchase, redeem or
otherwise prepay or repay any such security, or deposit any funds to effect the
same.
4.28 Employment and Labor Contracts. Except as set forth in Section 4.28
of the NeoStem Disclosure Statement, as described in a NeoStem SEC Report or as
set forth as an exhibit in a NeoStem SEC Report, neither NeoStem nor any of its
Subsidiaries is a party to any employment, management services, consultation or
other contract or agreement with any past or present officer, director or
employee or, to the knowledge of NeoStem, any entity affiliated with any past or
present officer, director or employee, other than the agreements executed by
employees generally, the forms of which have been provided or made available to
CBH.
4.29 Intellectual Property Rights. NeoStem or its Subsidiaries own or have
the right to use all material NeoStem Intellectual Property Rights (as defined
herein) necessary to conduct their respective businesses. Subject to obtaining
any associated consents with respect to agreements or licenses listed in Section
4.29 of the NeoStem Disclosure Statement, each NeoStem Intellectual Property
Right owned or used by NeoStem or any of its Subsidiaries immediately prior to
the Effective Time will be owned or available for use, in all material respects,
by NeoStem or its Subsidiaries on substantially the same terms and conditions
immediately subsequent to the Effective Time. Section 4.29 of the NeoStem
Disclosure Statement contains a list of all material patents, trade names,
registered copyrights, trademarks and service marks, mask works and applications
for the foregoing owned or used by NeoStem or its Subsidiaries. Except as set
forth in Section 4.29 of the NeoStem Disclosure Statement, (i) NeoStem and/or
its Subsidiaries have valid and unencumbered (except for NeoStem Permitted
Encumbrances) title to the NeoStem Intellectual Property Rights set forth in
such Section 4.29 and, to NeoStem's knowledge, such title has not been
challenged (pending or threatened) by others except for the encumbrances listed
therein; (ii) no material rights or licenses to use NeoStem Intellectual
Property Rights have been granted or acquired by NeoStem or its Subsidiaries;
(iii) there have been no claims or assertions made by others that NeoStem or its
Subsidiaries has infringed any Intellectual Property Rights of others by the
sale of products, the rendering of services or any other activity since December
31, 2007; (iv) to the knowledge of NeoStem, there has been no such infringement
by NeoStem or any of its Subsidiaries since December 31, 2007; (v) NeoStem has
no knowledge of any infringement of NeoStem Intellectual Property Rights of
NeoStem or any of its Subsidiaries by others; and (vi) all NeoStem Intellectual
Property Rights owned by NeoStem or its Subsidiaries are in good standing with
the registration authority therefor, if any, and, to the extent recorded on the
public record, are recorded in the name of NeoStem or its Subsidiaries. True and
complete copies of all material listed in Section 4.29 of the NeoStem Disclosure
Statement have been delivered or made available to CBH. For purposes of this
Agreement, the phrase "NeoStem Intellectual Property Rights" shall mean the
Intellectual Property Rights of NeoStem and its Subsidiaries.
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4.30 Taxes.
4.30.1 Except as set forth in Section 4.30 in the NeoStem Disclosure
Statement, (i) all Returns required to be filed by, or with respect to any
activities or assets of, each of NeoStem and its Subsidiaries have been duly and
timely filed and are correct and complete in all material respects, (ii) all
Taxes shown as owing on such Returns have been paid and (iii) none of NeoStem or
its Subsidiaries is currently the beneficiary of any extension of time within
which to file any Return.
4.30.2 Except as set forth in Section 4.30 of the NeoStem Disclosure
Statement, (i) all Taxes that are or may become payable by any of NeoStem or its
Subsidiaries or chargeable as an Encumbrance upon its assets for which the
filing of a Return is not required have been duly and timely paid and (ii) each
of NeoStem and its Subsidiaries has duly and timely withheld all Taxes required
to be withheld in connection with the business or assets of such entity, and
such withheld Taxes have been either duly and timely paid to the proper
governmental authorities or properly set aside in accounts for such purpose.
4.30.3 Except as set forth in Section 4.30 of the NeoStem Disclosure
Statement, there has been no claim or issue (other than a claim or issue that
has been finally settled) concerning any liability for Taxes of NeoStem or any
Subsidiary thereof asserted, raised or threatened by any taxing authority and,
to the knowledge of NeoStem and its Subsidiaries, no circumstances exist to form
the basis for such a claim or issue.
4.30.4 Section 4.30 of the NeoStem Disclosure Statement lists all
Income Tax Returns that have been filed with respect to each of NeoStem and its
Subsidiaries for taxable periods ended on or after January 1, 2006 and that have
not yet been audited or are currently the subject of audit.
4.30.5 Except as set forth in Section 4.30 of the NeoStem Disclosure
Statement, none of NeoStem or its Subsidiaries has (i) waived any statute of
limitations, (ii) agreed to any extension of the period for assessment or
collection or (iii) executed or filed any power of attorney with respect to
Taxes, which waiver, agreement or power of attorney is currently in force.
4.30.6 Except as set forth in Section 4.30 of the NeoStem Disclosure
Statement, (i) there are no outstanding adjustments for Income Tax purposes
applicable to NeoStem or any of its Subsidiaries required as a result of changes
in methods of accounting effected on or before the date of this Agreement and
(ii) no material elections for Income Tax purposes have been made by any of
NeoStem or its Subsidiaries that are currently in force or by which any of
NeoStem or its Subsidiaries is bound.
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4.30.7 Except as set forth in Section 4.30 of the NeoStem Disclosure
Statement, none of NeoStem or its Subsidiaries (i) is a party to or bound by or
has any obligation under any Tax allocation, sharing, indemnity or similar
agreement or arrangement or (ii) is or has been a member of any group of
companies filing a consolidated, combined or unitary Income Tax Return.
4.31 Employee Benefit Plans.
4.31.1 Except as set forth in Section 4.31 of the NeoStem Disclosure
Statement, with respect to any employee or former employee of NeoStem or any
Subsidiary thereof, none of NeoStem or any Subsidiary thereof, or any affiliated
company presently maintains, contributes to or has any liability under: (i) any
bonus, incentive compensation, profit sharing, retirement, pension, group
insurance, death benefit, cafeteria, medical expense reimbursement, dependent
care, stock option, stock purchase, stock appreciation rights, deferred
compensation, consulting, severance pay or termination pay, vacation pay,
welfare or other employee benefit or fringe benefit plan, program or
arrangement; or (ii) any plan, program or arrangement which is an employee
pension benefit plan, or an "employee welfare benefit plan" as defined under
relevant laws. Each plan, program and arrangement set forth in Section 4.31 of
the NeoStem Disclosure Statement is herein referred to as a "NeoStem Employee
Benefit Plan." The term "affiliated company" means any organization that would
be aggregated with any of NeoStem or any Subsidiary thereof under Section
414(b), (c), (m) or (o) of the Code.
4.31.2 There is no pending or threatened legal action, claim,
proceeding or investigation against or involving any NeoStem Employee Benefit
Plan (other than routine claims for benefits) and there is no basis for any
facts which could give rise to any such condition, legal action, claim,
proceeding or investigation.
4.31.3 Except as set forth in Section 4.31.3 of the NeoStem
Disclosure Statement, none of NeoStem or any Subsidiary thereof nor any of its
Affiliates is a party to any employment agreement, whether written or oral, or
agreement with change in control or similar provisions, or a collective
bargaining agreement or contract with any labor union relating to any employees
or former employees of NeoStem or any Subsidiary thereof.
4.32 Environmental Matters.
4.32.1 Each of NeoStem and its Subsidiaries has complied and is in
compliance in all material respects with all applicable Environmental Laws
pertaining to any of the properties and assets of NeoStem and its Subsidiaries
(including all real property owned by NeoStem or any of its Subsidiaries,
together with all structures, facilities, improvements, fixtures, systems,
equipment and items of property presently or hereafter located thereon or
attached or appurtenant thereto or owned by NeoStem or any of its Subsidiaries
and located on real property leased by NeoStem or any of its Subsidiaries, and
all easements, licenses, rights and appurtenances relating to the foregoing
(collectively the "NeoStem Real Property")) and the use and ownership thereof,
and to the operation of their respective businesses. No material violation by
NeoStem or any of its Subsidiaries is being alleged of any applicable
Environmental Law relating to any of the properties and assets of NeoStem or any
of its Subsidiaries including (the NeoStem Real Property) or the use or
ownership thereof, or to the operation of their respective businesses.
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4.32.2 None of NeoStem or its Subsidiaries or any other Person
(including any tenant or subtenant) has caused or taken any action that will
result in, nor is NeoStem or any Subsidiary thereof subject to, any material
liability or obligation on the part of NeoStem or any Subsidiary thereof or any
of its Affiliates, relating to (x) the environmental conditions on, under, or
about the NeoStem Real Property or other properties or assets owned, leased,
operated or used by NeoStem or any of its Subsidiaries or any predecessor
thereto at the present time or in the past, including without limitation, the
air, soil and groundwater conditions at such properties or (y) the past or
present use, management, handling, transport, treatment, generation, storage,
disposal or Release of any Hazardous materials.
4.32.2.1 NeoStem has disclosed and made available to CBH all
information, including, without limitation, all studies, analyses and test
results, in the possession, custody or control of or otherwise known to NeoStem
relating to (x) the environmental conditions on, under or about the Real
Property or other properties or assets owned, leased, operated or used by
NeoStem or any of its Subsidiaries any predecessor in interest thereto at the
present time or in the past, and (y) any Hazardous materials used, managed,
handled, transported, treated, generated, stored or Released by NeoStem or any
of its Subsidiaries or any other Person on, under, about or from any of the
NeoStem Real Property, or otherwise in connection with the use or operation of
any of the properties and assets of NeoStem or any of its Subsidiaries or their
respective businesses.
4.33 Disclosure. All information disclosed by or on behalf of NeoStem or
its Subsidiaries to CBH or its advisers on or prior to the date hereof is true
and accurate in all material aspects, and NeoStem is not aware of any other fact
or matter which renders any such information misleading because of any omission,
ambiguity or for any other reason. All information contained in the Disclosure
Statement is true and accurate in all aspects and fairly presented and there is
no fact or matter which has not been disclosed in the NeoStem Disclosure
Statement which renders any such information untrue or misleading and there is
no fact or matter concerning NeoStem or its Subsidiaries which has not on the
basis of the utmost good faith been disclosed in the NeoStem Disclosure
Statement which would reasonably be expected to influence the decision of CBH to
proceed with the Merger on the terms and conditions thereof.
4.34 NeoStem is currently listed on the American Stock Exchange, Inc. (the
"AMEX") and will get the shares of NeoStem Common Stock required to be issued
pursuant to this Agreement listed on the AMEX, the New York Stock Exchanges,
Inc. or the NASDAQ Stock Market (each, an "Exchange") at the time of the
Closing.
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ARTICLE V.
COVENANTS OF THE PARTIES
5.1 Access and Information.
5.1.1 Prior to the Closing, and except for disclosures which would
cause CBH or any of its Subsidiaries to waive the attorney-client privilege or
otherwise violate Applicable Law or any material confidentiality agreement,
NeoStem shall be entitled to make or cause to be made such investigation of CBH
and its Subsidiaries, and the financial and legal condition thereof, as NeoStem
deems necessary or advisable, and CBH and its Subsidiaries shall cooperate with
any such investigation. In furtherance of the foregoing, but not in limitation
thereof, CBH shall (a) permit NeoStem and its agents and representatives or
cause them to be permitted to have full and complete access to the premises,
operating systems, computer systems (hardware and software) and books and
records of CBH and its Subsidiaries upon reasonable notice during regular
business hours, (b) furnish or cause to be furnished to NeoStem such financial
and operating data, projections, forecasts, business plans, strategic plans and
other data relating to CBH and its Subsidiaries and their businesses as NeoStem
shall request from time to time (including the plant re-location and capacity
expansion plan of Erye) and (c) cause its accountants to furnish to NeoStem and
its accountants access to all work papers relating to any of the periods covered
by financial statements provided by CBH or Erye to NeoStem hereunder.
5.1.2 Prior to the Closing, and except for disclosures which would
cause NeoStem or any of its Subsidiaries to waive the attorney-client privilege
or otherwise violate Applicable Law or any material confidentiality agreement,
NeoStem shall (a) provide complete and accurate information to CBH and its
representatives in response to reasonable requests for information made in order
to enable CBH to confirm the accuracy of the representations set forth in
Article IV (including the continuing accuracy of those representations which are
not made as of a particular date) and the fulfillment of the covenants of this
Article V and the closing conditions in Sections 6.1 and 6.3 and (b) furnish to
CBH complete and accurate information comparable to the types of information
heretofore furnished by NeoStem to CBH in connection with the transactions
contemplated hereby and such other information as CBH may reasonably request (in
light of prevailing circumstances).
5.1.3 Prior to the Closing, NeoStem shall not use any information
provided to it in confidence by CBH for any purposes unrelated to this
Agreement. CBH shall not use any information provided to it in confidence by
NeoStem for any purposes unrelated to this Agreement. Except with respect to
publicly available documents, in the event that this Agreement is terminated,
(a) NeoStem will return to CBH all documents obtained by it from CBH and its
Subsidiaries in confidence and any copies thereof in the possession of NeoStem
or its agents and representatives or, at the option of NeoStem, NeoStem shall
cause all of such documents and all of such copies to be destroyed and shall
certify the destruction thereof to CBH and (b) CBH will return to NeoStem all
documents obtained by it from NeoStem and its Subsidiaries in confidence and any
copies thereof in the possession of CBH or its agents and representatives or, at
the option of CBH, CBH shall cause all of such documents and all of such copies
to be destroyed and shall certify the destruction thereof to NeoStem. No
investigation by NeoStem or CBH heretofore or hereafter made shall modify or
otherwise affect the conditions to the obligation of NeoStem and CBH to
consummate the transactions contemplated hereby.
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5.2 CBH's Affirmative Covenants. Prior to the Closing, except as otherwise
expressly provided herein, CBH shall (and CBH shall cause each of Erye and its
other Subsidiaries to):
5.2.1 conduct its business only in the ordinary and regular course
of business consistent with past practices;
5.2.2 use commercially reasonable efforts to keep in full force and
effect its corporate existence and all material rights, franchises, Intellectual
Property Rights and goodwill relating or pertaining to its businesses;
5.2.3 endeavor to retain its employees and preserve its present
relationships with customers, suppliers, contractors, distributors and
employees, and continue to compensate its employees consistent with past
practices;
5.2.4 use commercially reasonable efforts to maintain the CBH
Intellectual Property Rights so as not to affect adversely the validity or
enforcement thereof; maintain its other assets in customary repair, order and
condition and maintain insurance reasonably comparable to that in effect on the
date of this Agreement;
5.2.5 maintain its books, accounts and records in accordance with
generally accepted accounting principles;
5.2.6 use commercially reasonable efforts to obtain all
authorizations, consents, waivers, approvals or other actions and to make all
filings and applications necessary or desirable to consummate the transactions
contemplated hereby, including, without limitation, applications to the Suzhou
Bureau of Foreign Trade and Economic Cooperation Foreign Investment
Administration Department (the "SBFTEC") for the SBFTEC's approval of the
transfer of stock equity in Erye contemplated by this Agreement, and to cause
the other conditions to NeoStem's obligation to close to be satisfied;
5.2.7 promptly notify NeoStem in writing if, prior to the
consummation of the Closing, to its knowledge (a) any of the representations and
warranties contained in Article III cease to be accurate and complete in all
material respects (except for any representation and warranty (i) which is
qualified hereunder as to materiality, as to which such notification shall be
given if CBH or its Subsidiaries obtain knowledge that such representation and
warranty is inaccurate in any respect, or (ii) that addresses matters only as of
a particular date, which need only be true and correct as of such date) or (b)
CBH fails to comply with or satisfy any material covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.2.7 shall not limit
or otherwise affect the remedies available hereunder to NeoStem; and
5.2.8 cause the consolidated balance sheets and the related
consolidated statements of income and cash flows (including the related notes
thereto) of CBH included in CBH SEC Reports filed after the date hereof to
comply, in all material respects, with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, to be
prepared, in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise noted
therein), and to present fairly, in all material respects, the consolidated
financial position of CBH and its consolidated Subsidiaries as of their
respective dates, and the consolidated results of their operations and their
cash flows for the periods presented therein (subject, in the case of the
unaudited interim financial statements, to notes and normal year-end adjustments
that are not reasonably expected to be, material in amount or effect).
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5.3 NeoStem's Affirmative Covenants. Prior to the Closing, except as
otherwise expressly provided herein, NeoStem shall (and NeoStem shall cause each
of its Subsidiaries to):
5.3.1 Conduct its business only in the ordinary and regular course
of business consistent with past practices;
5.3.2 use commercially reasonable efforts to keep in full force and
effect its corporate existence and all material rights, franchises, the NeoStem
Intellectual Property rights and goodwill relating or obtaining to its
businesses;
5.3.3 endeavor to retain its employees and preserve its present
relationships with customers, suppliers, contractors, distributors and
employees, and continue to compensate its employees consistent with past
practice, which has included equity compensation particularly where available
cash has been limited;
5.3.4 maintain its books, accounts and records in accordance with
generally accepted accounting principles;
5.3.5 use commercially reasonable efforts to obtain all
authorizations, consents, waivers, approvals or other actions and to make all
filings and applications necessary or desirable to consummate the transactions
contemplated hereby and to cause the other conditions to CBH's obligation to
close to be satisfied; and
5.3.6 promptly notify CBH in writing if, prior to the consummation
of the Closing, to its knowledge (a) any of the representations and warranties
contained in Article IV cease to be accurate and complete in all material
respects (except for any representation and warranty (i) which is qualified
hereunder as to materiality, as to which such notification shall be given if
NeoStem or its Subsidiaries obtain knowledge that such representation and
warranty is inaccurate in any respect, or (ii) that addresses matters only as of
a particular date, which need only be true and correct as of such date) or (b)
NeoStem fails to comply with or satisfy any material covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 5.3.5 shall not limit
or otherwise affect the remedies available hereunder to CBH;
5.3.7 cause the consolidated balance sheets and the related
consolidated statements of income and cash flows (including the related notes
thereto) of NeoStem included in NeoStem SEC Reports filed after the date hereof
to comply, in all material respects, with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, to be
prepared, in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with prior periods (except as otherwise noted
therein), and to present fairly, in all material respects, the consolidated
financial position of NeoStem and its consolidated Subsidiaries as of their
respective dates, and the consolidated results of their operations and their
cash flows for the periods presented therein (subject, in the case of the
unaudited interim financial statements, to notes and normal year-end adjustments
that are not reasonably expected to be, material in amount or effect).
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5.4 CBH's Erye's Negative Covenants. Prior to the Closing, without the
prior written consent of NeoStem or as otherwise expressly provided herein, CBH
will not, and CBH will cause Erye and its other Subsidiaries not to:
5.4.1 take any action or omit to take any action which would result
in CBH's or any of its Subsidiaries' (a) incurring any trade accounts payable
outside of the ordinary course of Business or making any commitment to purchase
quantities of any item of inventory in excess of quantities normally purchased
in the ordinary course of business; (b) increasing any of its indebtedness for
borrowed money except in the ordinary course of business; (c) guaranteeing the
obligations of any entity other than CBH's Subsidiaries, (d) merging or
consolidating with, purchasing substantially all of the assets of, or otherwise
acquiring any business or any proprietorship, firm, association, limited
liability company, corporation or other business organization; (e) making any
representation to anyone indicating any intention of NeoStem or its Subsidiaries
to retain, institute, or provide any employee benefit plans; (f) after the
Registration Statement and/or Joint Proxy Statement is filed, issuing any shares
of the capital stock of any kind of CBH or its Subsidiaries, transferring from
the treasury of CBH or its Subsidiaries any shares of the capital stock of CBH
or its Subsidiaries, except for CBH Common Stock issuable upon exercise of a CBH
Stock Option, CBH Warrant or RimAsia CBH Warrant outstanding on December 31,
2007; (g) issuing or granting any subscriptions, options, rights, warrants,
convertible securities or other agreements or commitments to issue, or contracts
or any other agreements obligating CBH or its Subsidiaries to issue, or to
transfer from treasury, any shares of capital stock of any class or kind, or
securities convertible into any such shares; (h) modifying, amending or
terminating any material CBH Contract other than in the ordinary course of
business that is consistent with past practices; (i) entering into any other
transaction outside of the ordinary course of business, except that CBH may
extend the terms of or enter into new management and consulting agreements and
vendor relationships, or make strategic investments; (j) declaring or paying any
dividend or making any distribution with respect to, or purchasing or redeeming,
shares of the capital stock of CBH; or (k) selling or disposing of any assets
otherwise than in the ordinary course of business of CBH and its Subsidiaries;
5.4.2 change any method or principle of accounting in a manner that
is inconsistent with past practice, except to the extent required by generally
accepted accounting principles as advised by CBH's regular independent
accountants;
5.4.3 take any action that would likely result in the
representations and warranties set forth in Article III (other than
representations made as of a particular date) becoming false or inaccurate in
any material respect (or, as to representations and warranties, which, by their
terms, are qualified as to materiality, becoming false or inaccurate in any
respect);
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5.4.4 incur or create any encumbrances, liens, pledges or security
interests on assets other than CBH Permitted Encumbrances;
5.4.5 except as contemplated herein, take any action or omit to take
any action which would materially interfere with NeoStem's rights to compel
performance of each of the obligations of CBH under this Agreement;
5.4.6 take or omit to be taken any action, or permit any of its
affiliates to take or to omit to take any action, which would reasonably be
expected to result in a CBH Material Adverse Effect;
5.4.7 grant or otherwise issue any option, warrant or other
securities exercisable for or convertible into shares of CBH Common Stock or
other capital stock of CBH; or
5.4.8 agree or commit to take any action precluded by this Section
5.4.
5.5 NeoStem's Negative Covenants. Prior to the Closing, without the prior
written consent of CBH or as otherwise expressly provided herein, NeoStem will
not and NeoStem will cause its Subsidiaries not to:
5.5.1 except as set forth in the last paragraph of this Section 5.5,
take any action or omit to take any action which would result in NeoStem's or
any of its Subsidiaries' (a) incurring any trade accounts payable outside of the
ordinary course of Business or making any commitment to purchase quantities of
any item of inventory in excess of quantities normally purchased in the ordinary
course of business, other than costs associated with research and development of
very small embryonic-like (VSEL) stem cell technology and the establishment of a
new research and development laboratory; (b) increasing any of its indebtedness
for borrowed money except in the ordinary course of business; (c) guaranteeing
the obligations of any entity other than NeoStem's Subsidiaries; (d) declaring
or paying any dividend or making any distribution with respect to, or purchasing
or redeeming, shares of the capital stock of NeoStem; (e) selling or disposing
of any assets otherwise than in the ordinary course of business of NeoStem and
its Subsidiaries; (f) making any capital expenditures other than in the ordinary
course of business consistent with past practices and in no event in excess of
$100,000 individually, excluding capital expenditures associated with the
purchase of a flowcytometer and/or cryopreservation tanks; or (g) entering into
any other transaction outside of the ordinary course of business, except that
NeoStem may extend the terms of or enter into new management and consulting
agreements and vendor relationships, or make strategic investments; or (h)
merging or consolidating with, purchasing substantially all of the assets of, or
otherwise acquiring any business or any proprietorship, firm, association,
limited liability company, corporation or other business organization, except
for the merger contemplated by this Agreement and the acquisition with Red
Cross;
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5.5.2 change any method or principle of accounting in a manner that
is inconsistent with past practice, except to the extent required by generally
accepted accounting principles as advised by NeoStem's regular independent
accountants;
5.5.3 take any action that would likely result in the
representations and warranties set forth in Article IV (other than
representations made as of a particular date) becoming false or inaccurate in
any material respect (or, as to representations and warranties, which, by their
terms, are qualified as to materiality, becoming false or inaccurate in any
respect);
5.5.4 except as contemplated herein, take any action or omit to take
any action which would materially interfere with CBH's rights to compel
performance of each of the obligations of NeoStem under this Agreement;
5.5.5 take or omit to be taken any action, or permit any of its
affiliates to take or to omit to take any action, which would reasonably be
expected to result in a NeoStem Material Adverse Effect;
5.5.6 amend NeoStem's certificate of incorporation or by-laws, each
as amended, in any material manner that does not generally apply to all of
NeoStem's stockholders; or
5.5.7 agree or commit to take any action precluded by this Section
5.5.
Notwithstanding any provision to the contrary contained in this
Agreement, in no event shall NeoStem be prohibited from engaging in or otherwise
effecting, and shall be expressly permitted to engage in or otherwise effect,
any of the following transactions: (i) the transactions contemplated by this
Agreement, including, without limitation, the Merger, the change in the
composition of the NeoStem Board of Directors and the entrance into the
Employment Agreements, the Consultant Agreement and the CBC Non-Compete
Agreement (each, as defined herein); (ii) the merger or consolidation with,
purchase of substantially all of the assets of, or other acquisition of any
business or any proprietorship, firm, association, limited liability company,
corporation or other business organization so that that parties can move forward
with an acquisition of the business of Shangdong Institute (as defined herein),
if appropriate; (iii) a stock split, reclassification, combination or other
change with respect to shares of NeoStem Common Stock that may be necessary or
appropriate for NeoStem to comply with any Exchange listing standards; provided,
that the Exchange Ratio shall be adjusted to reflect any such stock split,
reclassification, combination or other change; (iv) the amendment, cancelation
and reissuance or other modification of any and all outstanding options to
purchase shares of NeoStem Common Stock and/or warrants to purchase shares of
NeoStem Common Stock immediately prior to the Closing, so that (a) any and all
outstanding options to purchase shares of NeoStem Common Stock and/or warrants
to purchase shares of NeoStem Common immediately prior to the Closing, may be
amended, canceled and reissued, or otherwise modified by NeoStem's Board of
Directors (or an appropriate committee thereof) so that the exercise price of
each such option and/or warrant shall be as set forth in Section 4.19 of the
NeoStem Disclosure Statement, and (b) simultaneously with the Closing, any and
all outstanding options to purchase shares of NeoStem Common Stock held by
employees, officers, directors or consultants providing services to NeoStem
immediately prior to the Closing shall be amended so that vesting is based on
the achievement of certain milestones; (v) a financing transaction, whether
through the private placement of securities of NeoStem or otherwise; (vi) the
adoption of the Equity Compensation Plan or (vii) at the discretion of the
Compensation Committee of the NeoStem Board of Directors, the grant or other
issuance of options to purchase up to an aggregate of 1,000,000 shares of
NeoStem Common Stock under the Equity Compensation Plan or any other equity
compensation plan as bonuses in connection with the closing of the transactions
contemplated by this Agreement.
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5.6 Closing Documents. CBH shall, prior to or on the Closing Date, execute
and deliver, or cause to be executed and delivered, to NeoStem the documents or
instruments described in Section 5.2. NeoStem shall, prior to or on the Closing
Date, execute and deliver, or cause to be executed and delivered, to CBH the
documents or instruments described in Section 5.3.
5.7 Further Actions. Each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable in light of the circumstances, the
Merger and the other transactions contemplated by this Agreement, including
without limitation (A) the obtaining of all other necessary actions or
nonactions, waivers, consents, licenses, permits, authorizations, orders and
approvals from Governmental Authorities and the making of all other necessary
registrations and filings, (B) the obtaining of all consents, approvals or
waivers from third parties related to or required in connection with the Merger
that are necessary to consummate the Merger and the transactions contemplated by
this Agreement or required to prevent a NeoStem Material Adverse Effect or a CBH
Material Adverse Effect from occurring prior to or after the Effective Time, (C)
the preparation of the Prospectus/Joint Proxy Statement and the Registration
Statement, the declaration of effectiveness of the Registration Statement by the
SEC and the mailing of the Prospectus/Joint Proxy Statement to the stockholders
of NeoStem and CBH, (D) if necessary as a result of the circumstances, the
amendment of the Registration Statement and Prospectus/Joint Proxy Statement as
required by law and (E) the execution and delivery of any additional instruments
necessary to consummate the transactions contemplated by, and to fully carry out
the purposes of, this Agreement.
5.8 Board of Directors and Officers of NeoStem.
(i) NeoStem shall use its reasonable best efforts to cause the
members of the Board of Directors to consist of the following five members
promptly following the Effective Time: Robin Smith, Madam Zhang Jian, Richard
Berman, Steven S. Myers and Joseph Zuckerman (the latter three to be independent
directors, as defined under the American Stock Exchange listing standards).
Within four months following the Effective Time, NeoStem's Board of Directors
shall, in accordance with NeoStem's bylaws, as amended, cause the number of
members constituting the Board of Directors of NeoStem to be increased from five
to seven and to fill the two vacancies created thereby with a designee of
RimAsia, who shall initially be Eric Wei, and with an independent director (as
defined under the American Stock Exchange listing standards) to be selected by a
nominating committee of the Board of Directors of NeoStem.
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(ii) It is anticipated that the key members of NeoStem's management
team will remain in place following the Effective Time.
5.9 Public Announcements. Unless otherwise required by Applicable Laws or
requirements of any Exchange on which the NeoStem Common Stock is quoted or
listed (and in that event only if time does not permit), at all times prior to
the earlier of the Effective Time or termination of this Agreement pursuant to
Section 7.1, NeoStem and CBH shall consult with each other before issuing any
press release with respect to the Merger and shall not issue any such press
release prior to such consultation.
5.10 Stockholders' Meetings.
5.10.1 NeoStem Annual Meeting. Subject to Article VII, NeoStem shall
take all action in accordance with the federal securities law, the DGCL, the
applicable rules of the Exchange on which the NeoStem Common Stock is listed or
quoted, NeoStem's certificate of incorporation, as amended, and NeoStem's
by-laws, as amended, necessary to convene the NeoStem Annual Meeting to be held
on the earliest practical date as reasonably determined by NeoStem in light of
the circumstances, and to obtain the consent and approval of NeoStem's
stockholders with respect to the issuance of the Exchanged Securities pursuant
to the Merger, including (in the absence of conditions that would justify the
termination of this Agreement) recommending such approval to NeoStem's
stockholders.
5.10.2 CBH Special Meeting. Subject to Article VII, CBH shall take
all action in accordance with the federal securities laws, the DGCL, CBH's
certificate of incorporation, as amended, and CBH's by-laws, as amended,
necessary to convene the CBH Special Meeting to be held on the earliest
practical date as reasonably determined by NeoStem in light of the
circumstances, and to obtain the consent and approval of CBH's stockholders with
respect to this Agreement and the transactions contemplated hereby, including
(in the absence of conditions that would justify the termination of this
Agreement) recommending such approval to CBH's stockholders.
5.11 Preparation of the Prospectus/Joint Proxy Statement and the
Registration Statement.
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5.11.1 NeoStem, CBH and CBC shall, as soon as is reasonably
practicable, cooperate to prepare the Prospectus/Joint Proxy Statement to be
included in the Registration Statement. Once NeoStem, CBH and CBC consent to the
filing of the Prospectus/Joint Proxy Statement with the SEC (which consent shall
not be unreasonably withheld), NeoStem shall file the Prospectus/Joint Proxy
Statement with the SEC, which filing shall be made on a confidential basis to
the extent permitted by the regulations of the SEC with respect to such filings.
Consistent with the timing for the NeoStem Annual Meeting and the CBH Special
Meeting as determined by NeoStem in accordance with Section 5.10, NeoStem shall,
subject to the consent of CBH and CBC (which shall not be unreasonably
withheld), prepare and file the Registration Statement with the SEC as soon as
is reasonably practicable following clearance of the Prospectus/Joint Proxy
Statement by the SEC and reasonable approval of the Prospectus/Joint Proxy
Statement by CBH, CBC and NeoStem and shall use all reasonable efforts to have
the Registration Statement declared effective by the SEC as promptly as
practicable thereafter and to maintain the effectiveness of the Registration
Statement through the Effective Time. If, at any time prior to the Effective
Time, NeoStem, CBH or CBC shall obtain knowledge of any information contained in
or omitted from the Registration Statement that would require an amendment or
supplement to the Registration Statement or the Prospectus/Joint Proxy
Statement, the party obtaining such knowledge will promptly so advise the other
parties in writing and each of CBH, CBC and NeoStem will promptly take such
action as shall be required to amend or supplement the Registration Statement
and/or the Prospectus/Joint Proxy Statement. Each of CBH and CBC shall promptly
furnish to NeoStem all financial and other information concerning it as may be
required for the Prospectus/Joint Proxy Statement and any supplements or
amendments thereto. NeoStem, CBH and CBC shall cooperate in the preparation of
the Prospectus/Joint Proxy Statement in a timely fashion and shall use all
reasonable efforts to clear the Prospectus/Joint Proxy Statement and the
Registration Statement with the Staff of the SEC. Promptly after the
Registration Statement is declared effective by the SEC, each of CBH, CBC and
NeoStem shall use all reasonable efforts to mail at the earliest practicable
date to its stockholders the Prospectus/Joint Proxy Statement, which shall
include all information required under Applicable Law to be furnished to CBH's
stockholders and NeoStem's stockholders in connection with the Merger, the
Spin-Off and the transactions contemplated thereby and shall include the CBH
Board Recommendation. NeoStem also shall take such other reasonable actions
(other than qualifying to do business in any jurisdiction in which it is not so
qualified or submitting to taxation in any jurisdiction in which it is not
subject to taxation) required to be taken under any applicable state securities
laws in connection with the issuance of NeoStem Common Stock and NeoStem Series
C Preferred Stock in the Merger. Notwithstanding any provision herein to the
contrary, prior to the time that the Registration Statement is declared
effective, the Prospectus/Joint Proxy Statement shall contain the audited
consolidated financial statements described in clause "a" of Section 5.16.1.
5.11.2 (a) Notwithstanding anything contained in this Agreement to
the contrary, NeoStem shall not be obligated to take any action under Section
5.11.1 unless and until the following conditions shall have been met: (i)
NeoStem shall have received the audited financial statements of CBH and Erye and
any other financial information of CBH or its Subsidiaries required for
inclusion in the Registration Statement, (ii) NeoStem shall have received pro
forma financial statements approved by CBH, Erye and its auditors required to be
included in the Registration Statement, under SEC rules, (iii) NeoStem shall
have received such auditor comfort letters from its, CBH's and Erye's auditors,
tax and other legal opinions from CBH's counsel, the PRC Opinion (as defined
herein) and (iv) NeoStem shall have received the opinion of vFinance to the
effect that the terms of the Merger are fair to NeoStem's stockholders from a
financial point of view (the "NeoStem Fairness Opinion"), each in form and
substance reasonably satisfactory to NeoStem.
(b) While it is the Parties' understanding that the joint
preparation and filing with the SEC of the Prospectus/Joint Proxy Statement and
Registration Statement by NeoStem, CBH and CBC is permissible under the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, there can be no assurance that the SEC will permit such joint
filings. Accordingly, notwithstanding anything contained in this Agreement to
the contrary, NeoStem shall not be obligated to take any action under Section
5.11.1 with respect to the registration under the Securities Act of shares of
CBC Common Stock to be issued pursuant to the Spin-Off if and to the extent the
inclusion in the Prospectus/Joint Proxy Statement and/or Registration Statement
of such registration is not permitted by the SEC. In such event, CBC shall file
a separate registration statement under the Securities Act relating to the
registration of the shares of CBC Common Stock to be issued pursuant to the
Spin-Off.
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5.12 Merger Subsidiary. Prior to the Effective Time, Subco shall not
conduct any business or make any investments other than as specifically
contemplated by this Agreement and will not have any assets (other than a de
minimis amount of cash paid to Subco for the issuance of its stock to NeoStem)
or any material liabilities.
5.13 Exchange Listing. NeoStem shall use its reasonable efforts to cause
the NeoStem Common Stock issuable pursuant to the Merger (including, without
limitation, the NeoStem Common Stock issuable upon conversion of the NeoStem
Series C Preferred Stock or the exercise of the Series B or C Warrants) to be
approved for listing on an Eligible Market, subject to official notice of
issuance, prior to the Effective Time.
5.14 CBH Lock-Up and Voting Agreement and Support Agreement. Concurrently
herewith, NeoStem, CBH, each director and officer of CBH, RimAsia, Erye, EET and
Dr. Wang Taihua and the holder of CBH Series A Preferred stock has entered into
the CBH Lock-Up and Voting Agreement. Concurrently herewith CBH shall deliver to
NeoStem a Support Agreement, in the form attached hereto as Exhibit E (the
"Support Agreement"), pursuant to which each of EET and Erye has agreed to take
certain actions in support and furtherance of the transactions contemplated
hereby.
5.15 Subsequent Financial Statements. CBH shall consult with NeoStem prior
to making publicly available its financial results for any period after the date
of this Agreement and prior to filing any CBH SEC Reports after the date of this
Agreement.
5.16 Financial Statements for a Current Report on Form 8-K.
5.16.1 Prior to the Closing, CBH shall provide, and shall cause Erye
to provide, to NeoStem (a) regardless of when the Closing occurs, (i) audited
consolidated balance sheets of each of CBH and Erye and its Subsidiaries as of
December 31, 2007 and 2006, (ii) audited consolidated statements of income, cash
flows and changes in shareholders' equity of each of CBH and Erye and its
Subsidiaries for the years ended December 31, 2007, 2006 and 2005, and (iii) an
unqualified report with respect to such audited financial statements by Moore
Stephens Wurth Frazer & Torbet, LLP, which report shall be in form and substance
reasonably satisfactory to NeoStem, and (b) if the Closing occurs on or after
November 14, 2008, in addition to the items referred to in clause "a" of this
Section 5.16.1, (i) unaudited consolidated balance sheets of each of CBH and
Erye and its respective Subsidiaries as of September 30, 2008 and 2007, (ii)
unaudited consolidated statements of income, cash flows and changes in
shareholders' equity of each of CBH and Erye and its respective Subsidiaries for
the three and nine months ended September 30, 2008 and 2007, and (iii) all other
financial statements of CBH or Erye required for any SEC filing to be filed by
NeoStem, including, without limitation, pro forma financial statements that give
effect to the Spin-Off. Such financial statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
and shall conform in all material respects to all provisions of the SEC's
Regulation S-X, so that such financial statements meet the requirements for
filing by NeoStem with the SEC as required by the SEC's Current Report on Form
8-K. Prior to the Closing, CBC shall provide to NeoStem all financial statements
of CBC required for any SEC filing to be filed by NeoStem.
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5.16.2 At the Closing, CBH shall cause Moore Stephens Wurth Frazer &
Torbet, LLP to deliver to NeoStem an executed consent, in form and substance
reasonably satisfactory to NeoStem and suitable for filing by NeoStem with the
SEC, which consent shall authorize NeoStem to file with the SEC the reports
delivered pursuant to Section 5.16.1.
5.16.3 Upon NeoStem's request, contemporaneous with the delivery of
the consolidated financial statements described in clause "a" of Section 5.16.1,
CBH shall cause Moore Stephens Wurth Frazer & Torbet, LLP to make available to
NeoStem and its representatives the work papers generated in connection with
such accounting firm's audit of the audited consolidated financial statements
delivered pursuant to Section 5.16.1.
5.16.4 Prior to the Closing, CBH and CBC shall cooperate, and CBH
shall cause Erye to cooperate, with NeoStem in providing to NeoStem such
consolidated financial statements, financial data and accountants' reports as
NeoStem shall reasonably request with respect to any filing that NeoStem shall
make under the Securities Act or the Exchange Act.
5.17 CBC Spin-Off.
5.17.1 CBH has represented that any and all CBH Payable Obligations
are less than $450,000 and will be less than $450,000 as of the Closing Date.
The parties have agreed that at or prior to Closing, CBH shall have satisfied
all of the CBH Payable Obligations, except that CBH Payable Obligations in the
aggregate amount of not more than $225,000 may remain at or after the Closing to
be paid, satisfied or otherwise provided for by NeoStem including within such
$225,000 to be satisfied by NeoStem (a) NeoStem shall satisfy $97,000 of
liabilities due to Globus and Mao by the issuance of shares pursuant to Section
2.7 and (b) NeoStem may negotiate with any other creditor listed on Schedule
3.14(b) of the CBH Disclosure Statement to attempt to settle such liability with
NeoStem shares rather than cash and to have such liability be part of its
maximum $225,000 obligation hereunder. Neither NeoStem nor the Surviving Company
will have any responsibility for CBH Payable Obligations in excess of $225,000.
CBH shall take any and all action necessary or appropriate to obtain a release,
in the form attached hereto as Exhibit F (each, a "CBH Liability Release"), from
each Person to whom any CBH Payable Obligations is, or as of the Closing Date
will be, owed (each, a "CBH Creditor"), pursuant to which each such CBH Creditor
shall release NeoStem, Subco, CBH and Erye from any and all CBH Payable
Obligations except as provided in the prior sentence.
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5.17.2 CBH shall take any and all action necessary or appropriate to
obtain any and all authorizations, consents, waivers, approvals or other actions
required to be obtained for the Spin-Off.
5.18 Erye Revenues. Prior to the Closing, CBH shall cause Erye to agree to
contribute to NeoStem 6% of the net annual income received by Erye, commencing
with the year ending December 31, 2009, in order to fund NeoStem's costs and
expenses.
ARTICLE VI.
CONDITIONS
6.1 Conditions to the Obligations of Each Party. The obligations of CBH,
NeoStem and Subco to consummate the Merger shall be subject to the satisfaction
(or waiver by each party, to the extent permitted by law) of the following
conditions:
6.1.1 (i) This Agreement, the Merger and the transactions
contemplated hereby shall have been approved and adopted by CBH's stockholders
in the manner required by any Applicable Law, and (ii) this Agreement, the
amendment of the charter to increase the authorized preferred stock and the
issuance of the shares of the Exchanged Securities to be issued in the Merger
shall have been approved by NeoStem's stockholders and NeoStem in the manner
required by any Applicable Law and the applicable rules of the Exchange on which
the NeoStem Common Stock is quoted or listed.
6.1.2 No Governmental Authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
judgment, decree, injunction or other order which is in effect, which would
prohibit consummation of the transactions contemplated by this Agreement or
which would have a NeoStem Material Adverse Effect after the Effective Time and
after giving effect to consummation of the transactions contemplated by this
Agreement.
6.1.3 The SEC shall have declared the Registration Statement
effective under the Securities Act, and no stop order or similar restraining
order suspending the effectiveness of the Registration Statement shall be in
effect and no proceedings for such purpose shall be pending before or threatened
by the SEC or any state securities administrator.
6.1.4 The shares of NeoStem Common Stock required to be issued
pursuant to the Merger (including, without limitation, the NeoStem Common Stock
issuable upon the exercise of the Class C Warrants or conversion of the NeoStem
Series C Preferred Stock) shall have been approved for listing on the Exchange
on which the NeoStem Common Stock is listed or quoted, subject to official
notice of issuance.
6.1.5 Each of Robin Smith and Madam Zhang Jian shall have entered
into employment agreements with NeoStem, effective as of the Effective Time, in
substantially form and substance reasonably acceptable to NeoStem and each of
them of (each, an "Employment Agreement").
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6.1.6 This Agreement, the Erye Letter of Intent to Enter into
Amended and Restated Joint Venture Agreement, dated as of the date hereof, among
NeoStem, Subco and Erye Economy and Trading Co. Ltd., a Sino-Foreign joint
venture with limited liability organized under the laws of the PRC ("EET"), a
copy of which is attached hereto as Exhibit G (the "Erye Letter of Intent to
Enter into Amended and Restated Joint Venture Agreement"), the Amended and
Restated Erye Joint Venture Agreement, in the form attached hereto as Exhibit H
(the "Amended and Restated Erye Joint Venture Agreement"), to replace all
existing agreements between CBH and EET, and the Articles of Incorporation of
Erye, as amended in accordance with Section 6.1.7, shall have been prepared in
or translated into Chinese by Erye, and such Chinese versions as shall be
legally required shall have been delivered to the relevant PRC and other
governmental organizations for inspection and approval, and all such approvals
have been obtained. NeoStem, Subco and EET shall have entered into the Amended
and Restated Erye Joint Venture Agreement simultaneously with Closing and after
such approvals, and the Amended and Restated Erye Joint Venture Agreement shall
be in full force and effect. NeoStem, Subco and EET shall have performed all of
its obligations under this Agreement, the Erye Letter of Intent to Enter into
Amended and Restated Joint Venture Agreement and under the Amended and Restated
Erye Joint Venture Agreement.
6.1.7 The organizational documents of Erye shall be amended in a
manner satisfactory as to form and substance to NeoStem, and copies of the
amended organizational documents of Erye shall have been provided to NeoStem.
6.1.8 The result of any and all due diligence, including, but not
limited to, legal due diligence, financial due diligence and business due
diligence, shall be satisfactory to NeoStem, in its sole discretion. In
furtherance of, but without limiting the foregoing, there shall have been a
review by NeoStem of (i) the plant relocation and capacity expansion plan of
Erye and (ii) financial projections (together with supporting assumptions) of
Erye, both of which shall be satisfactory to NeoStem, in its sole discretion.
6.2 Conditions to NeoStem's and Subco's Obligations. The obligations of
NeoStem and Subco to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment (or waiver by NeoStem) prior to or at
Closing of each of the following conditions:
6.2.1 The representations and warranties of CBH set forth in Article
III shall be true and correct in all material respects (other than
representations and warranties which are qualified as to materiality, which
representations and warranties shall be true in all respects) on the date hereof
and on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date, which
shall be measured only as of such specified date), except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitations as to "materiality" or a CBH Material Adverse Effect
set forth therein) does not have, and is not reasonably likely to have,
individually or in the aggregate, a CBH Material Adverse Effect, provided that
the representations and warranties set forth in Sections 3.1, 3.2, 3.5 and 3.19
shall be true and correct in all material respects (other than representations
and warranties which are qualified as to materiality, which representations and
warranties shall be true in all respects) on the date hereof and on and as of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
measured as of such specified date).
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6.2.2 CBH and CBC shall have performed in all material respects each
of its obligations under this Agreement and shall have complied in all material
respects with each covenant to be performed and complied with by it under this
Agreement at or prior to the Closing.
6.2.3 Since the date of this Agreement, there shall not have
occurred any act, event or omission having or reasonably likely to have a CBH
Material Adverse Effect.
6.2.4 CBH, CBC and Erye shall have obtained all authorizations,
consents, waivers, approvals or other actions described in Section 6.2.4 of the
CBH Disclosure Statement required in connection with the execution, delivery and
performance of this Agreement by CBH and its Subsidiaries (the "CBH Approvals")
and the CBH Approvals shall be in full force and effect as of the Closing Date.
NeoStem shall have obtained all authorizations, consents, waivers, approvals or
other actions described in Section 6.2.4 of the NeoStem Disclosure Statement
(the "NeoStem Approvals") and the NeoStem Approvals shall be in full force and
effect as of the Closing Date.
6.2.5 NeoStem will receive at Closing $550,000 of unencumbered cash
from the LXB litigation settlement.
6.2.6 There shall not be pending any legal proceeding by any
Governmental Authority or other third party which (a) in the reasonable judgment
of NeoStem's Board of Directors, is reasonably likely to cause a NeoStem
Material Adverse Effect after the Effective Time giving effect to consummation
of the transactions contemplated by this Agreement and (b) either (i) challenges
or seeks to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by this Agreement, (ii) seeks to prohibit or
limit the ownership or operation by NeoStem, CBH or any of their respective
subsidiaries of, or to compel NeoStem, CBH or any of their respective
subsidiaries to dispose of or hold separate, any material portion of the
business or assets of NeoStem, CBH or any of their respective subsidiaries, as a
result of the Merger or any of the other transactions contemplated by this
Agreement, (iii) seeks to impose limitations on the ability of NeoStem to
acquire or hold, or exercise full rights of ownership of, any shares of capital
stock of the Surviving Company or the Erye Ownership, including the right to
vote such capital stock of the Surviving Company and Erye on all matters
properly presented to the stockholders of the Surviving Company or Erye, or (iv)
seeks to prohibit NeoStem or any subsidiary of NeoStem from effectively
controlling in any material respect the business or operations of NeoStem or the
subsidiaries of NeoStem including the Surviving Company and Erye.
6.2.7 Prior to or at the Closing, CBH shall have delivered to
NeoStem the following:
6.2.7.1 a certificate of the Chairman of CBH and Erye
(executed on behalf of CBH and Erye), dated the Closing Date, to the effect that
(1) the person signing such certificate is familiar with this Agreement and (2)
to such person's knowledge, the conditions specified in Sections 6.2.1, 6.2.2
and 6.2.3 have been satisfied;
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6.2.7.2 a certificate of the Secretary or Assistant Secretary
of CBH and Erye, dated the Closing Date, as to the incumbency of any officer of
such entity executing this Agreement or any document related hereto; and
6.2.7.3 (a) a copy of (1) the certificate of incorporation, as
amended, of CBH, certified by the Delaware Secretary of State and dated not
earlier than fifteen days prior to the Closing, (2) a certificate of the
Delaware Secretary of State, dated not earlier than fifteen days prior to the
Closing and confirming that CBH is in good standing in the State of Delaware,
(3) the by-laws, as amended, of CBH, certified by the Secretary or Assistant
Secretary of CBH as of the Closing Date, and (4) the resolutions of CBH's Board
of Directors authorizing the execution, delivery and consummation of this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of CBH as of the Closing Date and (b) comparable
documentation for Erye.
6.2.8 All reports of CBH's independent accountants relating to CBH's
and Erye's audited consolidated financial statements filed with (or incorporated
by reference in any document filed with) the SEC subsequent to the date hereof
and prior to the Effective Time shall certify, without qualification or
exception, that such financial statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved and (b) fairly present, in all material respects, the
consolidated financial position of the entities described therein as of the
dates thereof and the consolidated results of operations and consolidated cash
flows of such entities for the periods presented.
6.2.9 NeoStem shall have received opinions of PRC counsel to CBH and
its Subsidiaries (the "PRC Opinion") and tax counsel to CBH and its Subsidiaries
(the "Tax Opinion"), in the form and substance reasonably satisfactory to
NeoStem, including without limitation, with respect to the Merger, the tax-free
status of the reorganization, the spin-off, the regulatory status of Erye and
the disclosure in the Registration Statement, respectively. Such counsel shall
also provide NeoStem with appropriate opinion letters prior to the filing of the
Registration Statement and/or Joint Proxy Statement.
6.2.10 NeoStem shall have received the NeoStem Fairness Opinion
prior to the filing of the Registration Statement and/or Joint Proxy Statement
and a re-affirmation of such NeoStem Fairness Opinion prior to Closing.
6.2.11 NeoStem shall have received proof satisfactory to it that CBH
has not less than $550,000 in unencumbered cash available for distribution to
NeoStem and has settled any and all CBH Payable Obligations subject to Section
5.17.1.
6.2.12 NeoStem shall have received proof satisfactory to it that the
Spin-Off has been consummated or is being consummated simultaneously with the
Merger, and that all regulatory, stockholder and other approvals for the
Spin-Off have been received by CBH.
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6.2.13 NeoStem shall have received proof satisfactory to it that all
CBH Warrants, RimAsia CBH Warrants and shares of CBH Series A Preferred Stock
have been terminated and cancelled.
6.2.14 NeoStem shall have received (i) a true and complete list of
any and all CBH Payable Obligations immediately prior to the Closing Date and
the name and address of each CBH Creditor thereof; (ii) proof satisfactory to it
that all CBH Payable Obligations have been paid, satisfied or otherwise provided
for or transferred to CBC; and (iii) a CBH Liability Release from each CBH
Creditor.
6.2.15. The CBH Lock-Up and Voting Agreement shall be in full force
and effect, and each director and officer of each of CBH, holder of shares of
CBH Series A Preferred Stock, RimAsia, Erye and EET shall have performed all of
his, her or its obligations under, and shall not have breached any provision of,
the CBH Lock-Up and Voting Agreement. The Support Agreement shall be in full
force and effect, and each of EET and Erye shall have performed all of its
obligations under, and shall not have breached any provision of, the Support
Agreement.
6.2.16. The Escrow Agreement shall have been executed and delivered
by CBC and the Escrow Agent.
6.2.17. All personnel of each of CBH and Erye who will be personnel
of NeoStem, Subco or Erye immediately following the Closing, shall have executed
and delivered to NeoStem a Confidentiality, Invention Assignment and Non-Compete
Agreement, substantially in form and substance signed by NeoStem's current
personnel (the "NeoStem Confidentiality Agreement").
6.2.18. Mao shall have executed and delivered to NeoStem a
consulting agreement, effective as of the Effective Time, in form and substance
reasonably acceptable to NeoStem and Mao, which shall include, without
limitation a NeoStem Confidentiality Agreement (the "Consulting Agreement").
6.2.19. CBC shall have executed and delivered to NeoStem a
non-competition agreement, effective as of the Effective Time, in form and
substance reasonably acceptable to NeoStem and CBC, pursuant to which CBC shall
agree, for a period of two (2) years, not to engage in stem cell collection,
storage or therapies. ( the "CBC Non-Compete Agreement").
6.2.20. All of the holders of CBH Common Stock Purchase Warrants
shall have agreed in writing to accept the Class C Warrants in exchange thereof
pursuant to a Class C Warrant Agreement.
6.2.21. NeoStem shall have received evidence satisfactory to
NeoStem, in its sole discretion, of the satisfaction in full of any and all (i)
indebtedness for borrowed money payable by CBH to Globus, including, without
limitation, indebtedness in the principal amount of $50,000, plus any and all
accrued but unpaid interest thereon or other obligations of CBH to Globus,
including expense reimbursement (collectively, the "Globus Obligation") and (ii)
indebtedness for borrowed money payable by CBH to Mao, including, without
limitation, indebtedness in the principal amount of $40,000, plus any and all
accrued but unpaid interest thereon or other obligations (the "Mao Obligation").
NeoStem also shall have received evidence satisfactory to it, in its sole
discretion, of the cancelation of the CBH Series A Preferred Stock.
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6.2.22. NeoStem shall have received evidence satisfactory to it that
the transfer of stock equity in Erye contemplated by this Agreement shall have
been approved by the SBFTEC; that the Merger shall have been approved by Except
for the approval of the competent authorities of commerce under the Law on
Sino-Foreign Equity Joint Ventures and its implementation regulations; and that
any and all requisite registrations with the China State Administration of
Foreign Exchange shall have been made.
6.2.23. NeoStem shall have received evidence reasonably satisfactory
to it from each relevant PRC Governmental Authority that CBH and its
Subsidiaries are in compliance in all material respects with all applicable Tax
Laws and Environmental Laws.
6.2.24. CBH shall have purchased a six-year prepaid "tail policy" on
terms and conditions (in both amount and scope) providing substantially
equivalent benefits as the current policies of directors' and officers'
liability insurance maintained by CBH and its Subsidiaries with respect to
matters arising on or before the Effective Time, the cost of which shall not
exceed 150% of the last annual premium paid by CBH prior to the date of this
Agreement with respect to its current policies of directors' and officers'
liability insurance.
6.2.25. Erye shall have agreed to contribute to NeoStem 6% of the
net annual income received by Erye, commencing with the year ending December 31,
2009, in order to fund NeoStem's costs and expenses, including, without
limitation the costs and expenses incurred by NeoStem in connection with the
transactions contemplated hereby.
6.2.26 NeoStem shall have received proof satisfactory to it that PRC
national candidates for NeoStem board seats reasonably acceptable to NeoStem
have been identified by CBH or Erye and have indicated a willingness to serve.
6.2.27 Neostem shall be able to consolidate the financial statements
of Erye under GAAP.
6.3 Conditions to CBH's Obligations. The obligations of CBH to consummate
the transactions contemplated by this Agreement shall be subject to the
fulfillment (or waiver by CBH) at or prior to the Closing of each of the
following conditions:
6.3.1 The representations and warranties of NeoStem and Subco set
forth in Article IV shall be true and correct in all material respects (other
than representations and warranties which are qualified as to materiality, which
representations and warranties shall be true in all respects) on the date hereof
and on and as of the Closing Date as though made on and as of the Closing Date
(except for representations and warranties made as of a specified date, which
shall be measured only as of such specified date), except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any limitations as to "materiality" or a NeoStem Material Adverse
Effect set forth therein) does not have, and is not reasonably likely to have,
individually or in the aggregate, a NeoStem Material Adverse Effect, provided
that the representations and warranties set forth in Sections 4.1, 4.2 and 4.19
shall be true and correct in all material respects (other than representations
and warranties which are qualified as to materiality, which representations and
warranties shall be true in all respects) on the date hereof and on and as of
the Closing Date as though made on and as of the Closing Date (except for
representations and warranties made as of a specified date, which shall be
measured as of such specified date).
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6.3.2 NeoStem and Subco shall have performed in all material
respects each of its obligations under this Agreement and shall have complied in
all material respects with each covenant to be performed and complied with by
NeoStem and Subco under this Agreement at or prior to the Closing.
6.3.3 NeoStem shall have obtained all of the NeoStem Approvals and
the NeoStem Approvals shall be in full force and effect as of the Closing Date.
6.3.4 Prior to or at the Closing, NeoStem and Subco shall have
delivered to CBH the following:
6.3.4.1 a certificate of the Chief Executive Officer of
NeoStem (executed on behalf of NeoStem), dated the Closing Date, to the effect
that (1) the person signing such certificate is familiar with this Agreement and
(2) to such person's knowledge, the conditions specified in Sections 6.3.1,
6.3.2 and 6.3.5 have been satisfied;
6.3.4.2 a certificate of the Secretary or Assistant Secretary
of each of NeoStem and Subco, dated the Closing Date, as to the incumbency of
any officer of NeoStem and Subco executing this Agreement or any document
related hereto;
6.3.4.3 a copy of (1) the certificate of incorporation, as
amended, of NeoStem, certified by the Delaware Secretary of State and dated not
earlier than fifteen days prior to the Closing, (2) a certificate of the
Delaware Secretary of State, dated not earlier than fifteen days prior to the
Closing and confirming that NeoStem is in good standing in the State of
Delaware, (3) the by-laws, as amended, of NeoStem, certified by the Secretary or
Assistant Secretary of NeoStem as of the Closing Date, and (4) the resolutions
of NeoStem's Board of Directors (or committee thereof) authorizing the
execution, delivery and consummation of this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of
NeoStem as of the Closing Date; and
6.3.4.4 a copy of (1) the certificate of incorporation, as
amended, of Subco, certified by the Delaware Secretary of State and dated not
earlier than fifteen days prior to the Closing, (2) a certificate of the
Delaware Secretary of State, dated not earlier than fifteen days prior to the
Closing and confirming that Subco is in good standing in the State of Delaware,
(3) the by-laws, as amended, of Subco, certified by the Secretary or Assistant
Secretary of Subco as of the Closing Date, and (4) the resolutions of Subco's
Board of Directors authorizing the execution, delivery and consummation of this
Agreement and the transactions contemplated hereby, certified by the Secretary
or Assistant Secretary of Subco as of the Closing Date.
6.3.4.5. CBH shall have received opinions of US counsel to
NeoStem and its Subsidiaries (the "Legal Opinion") and tax counsel to NeoStem
and its Subsidiaries (the "Tax Opinion"), in the form and substance reasonably
satisfactory to CBH, including without limitation, with respect to the Merger,
the tax-free status of the reorganization, and the disclosure in the
Registration Statement, but not with respect to the spin-off or the preferred
stock. Such counsel shall also provide CBH with appropriate opinion letters
prior to the filing of the Registration Statement and/or Joint Proxy Statement.
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6.3.5 Since the date of this Agreement, there shall not have
occurred any act, event or omission having or reasonably likely to have a
NeoStem Material Adverse Effect.
6.3.6 All reports of NeoStem's independent accountants relating to
NeoStem's audited consolidated financial statements filed with (or incorporated
by reference in any document filed with) the SEC subsequent to the date hereof
and prior to the Effective Time shall certify, without qualification or
exception, that such financial statements (a) have been prepared in accordance
with generally accepted accounting principles consistently applied during the
periods involved and (b) fairly present, in all material respects, the
consolidated financial position of the entities described therein as of the
dates thereof and the consolidated results of operations and consolidated cash
flows of such entities for the periods presented.
6.3.7 NeoStem's Board of Directors and stockholders shall have
adopted an equity incentive compensation plan reasonably satisfactory to the
Parties.
6.3.8 NeoStem shall have delivered evidence, satisfactory to CBH, of
the filing of the NeoStem Certificate of Designations with the Delaware
Secretary of State.
6.3.9 The Escrow Agreement shall have been executed and delivered by
NeoStem and the Escrow Agent and the Escrow Certificates shall have been
deposited with the Escrow Agent.
6.3.10 The NeoStem Lock-Up and Voting Agreement, dated as of the
date hereof, among NeoStem, Inc. and each director and officer of NeoStem, a
copy of which is attached hereto as Exhibit I (the "NeoStem Lock-Up and Voting
Agreement"), shall be in full force and effect, and each director and officer of
NeoStem shall have performed all of his, her or its obligations under, and shall
not have breached any provision of, the NeoStem Lock-Up and Voting Agreement.
6.3.11 The Transaction Expenses. NeoStem or the Surviving Company
shall pay for all the reasonable Transaction Expenses.
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of this Agreement by CBH's stockholders and/or NeoStem's stockholders):
7.1.1 by mutual written consent of NeoStem and CBH;
7.1.2 by either NeoStem or CBH if there shall be any law or
regulation that, as supported by the written opinion of outside legal counsel,
makes consummation of the Merger illegal or otherwise prohibited, or if any
judgment, injunction, order or decree of a court or other competent Governmental
Authority enjoining NeoStem or CBH from consummating the Merger shall have been
entered and such judgment, injunction, order or decree shall have become final
and nonappealable;
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7.1.3 by either NeoStem or CBH if the Merger shall not have been
consummated before the Outside Date (as hereinafter defined), provided, however,
that the right to terminate this Agreement under this Section 7.1.3 shall not be
available to any party whose failure or whose affiliate's failure to perform any
material covenant or obligation under this Agreement has been the cause of or
resulted in the failure of the Merger to occur on or before such date;
7.1.4 by either NeoStem or CBH if at the CBH Special Meeting
(including any adjournment or postponement thereof) the requisite vote (under
all Applicable Laws) of CBH's stockholders to approve the Merger and the
transactions contemplated hereby shall not have been obtained;
7.1.5 by either NeoStem or CBH if at the NeoStem Annual Meeting
(including any adjournment or postponement thereof) the requisite vote (under
all Applicable Laws and the rules and regulations of the Exchange on which the
NeoStem Common Stock is listed or quoted) of NeoStem's stockholders to authorize
the issuance of NeoStem Common Stock in the Merger shall not have been obtained;
7.1.6 by NeoStem if vFinance, acting in good faith and in accordance
with recognized professional standards consistent with prior practices, declines
to provide NeoStem with opinions, in form and substance satisfactory to NeoStem,
and based on reasonable and customary analyses as of the date of any
Prospectus/Joint Proxy Statement, and an updated Opinion as of the Closing Date,
to the effect that the Merger Consideration is fair to NeoStem and its
stockholders from a financial point of view (with such opinions to be delivered
immediately prior to the filing of the Registration Statement and the Closing,
respectively);
7.1.7 by either NeoStem or CBH if any representation or warranty
made in this Agreement (including without limitation the CBH Disclosure
Statement and the NeoStem Disclosure Statement) for its benefit is untrue in any
material respect (other than representations and warranties which are qualified
as to materiality, which representations and warranties will give rise to
termination if untrue in any respect); provided that, in each case, (a) the
party seeking to terminate this Agreement is not then in material breach of any
material representation or warranty contained in this Agreement, (b) such untrue
representation or warranty cannot be or has not been cured within 30 days after
receipt of written notice of such breach and (c) in the case of CBH, except for
the representations and warranties contained in Sections 3.1, 3.2, 3.5 and 3.19
and in the case of NeoStem, except for the representations and warranties
contained in Sections 4.1, 4.2 and 4.19, such untrue representation and warranty
has, or is reasonably likely to have, a CBH Material Adverse Effect or a NeoStem
Material Adverse Effect, as the case may be and in each case after the Effective
Time and after giving effect to consummation of the transactions contemplated by
this Agreement;
7.1.8 by either NeoStem or CBH if the other party shall have
defaulted in the performance of any material covenant or agreement under this
Agreement; provided that, in each case, (a) the party seeking to terminate this
Agreement has complied with its covenants and agreements under this Agreement in
all material respects and (b) such failure to comply cannot be or has not been
cured within 30 days after receipt of written notice of such default;
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7.1.9 by NeoStem if any authorization, consent, waiver or approval
required for the consummation of the transactions contemplated hereby shall
require the divestiture or cessation of any of the present business or
operations conducted by NeoStem or its Subsidiaries or CBH or its Subsidiaries
or shall impose any other material condition or requirement, which divestiture,
cessation, condition or requirement, in the reasonable judgment of NeoStem's
Board of Directors (or a committee thereof), would be reasonably likely to have
a NeoStem Material Adverse Effect after the Effective Time giving effect to
consummation of the transactions contemplated by this Agreement;
7.1.10 by NeoStem, in the event that the conditions to its
obligations set forth in Article VI have not been satisfied or waived by the
date set for the Closing or in the event that such conditions cannot possibly be
satisfied prior to the Outside Date, provided that NeoStem is not then in
material breach of any material representation, warranty, covenant or other
agreement contained in this Agreement;
7.1.11 by CBH, in the event that the conditions to its obligations
set forth in Article VI have not been satisfied or waived by the date set for
the Closing or in the event that such conditions cannot possibly be satisfied
prior to the Outside Date, provided that CBH is not then in material breach of
any material representation, warranty, covenant or other agreement contained in
this Agreement; or
7.1.12 by NeoStem, upon election by its Board of Directors (or a
committee thereof), in the event that the Dissenting Shares represent more than
five (5%) of the shares of CBH Common Stock or CBH Preferred Stock held by
holders thereof who are entitled to vote on the Merger.
7.1.13 by NeoStem, if the Spin-Off has not been fully consummated by
CBH prior to the Outside Date. For purposes of this Agreement, the "Outside
Date" shall mean March 1, 2009.
7.2 Effect of Termination.
7.2.1 In the event of the termination of this Agreement pursuant to
Section 7.1, this Agreement, except for any provisions relating to the
confidentiality obligations of the parties hereto to each other and the
provisions of this Section 7.2 and Section 8.12, shall become void and have no
effect, without any liability on the part of any party or its directors,
officers or stockholders. Notwithstanding the foregoing, nothing in this Section
7.2 shall relieve any party to this Agreement of liability for a material breach
of any material provision of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors (or
committees thereof), at any time before or after adoption of this Agreement by
CBH's stockholders, but after any such approval, no amendment shall be made
which by law requires further approval or authorization by CBH's stockholders
without such further approval or authorization. Notwithstanding the foregoing,
this Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
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7.4 Extension; Waiver. At any time prior to the Effective Time, NeoStem
(with respect to CBH and CBC) and CBH (with respect to NeoStem and Subco) by
action taken or authorized by their respective Boards of Directors (or committee
thereof), may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of such party, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
8.1 No Survival of Representations and Warranties. The representations and
warranties made herein by NeoStem and CBH shall not survive the Effective Time
and the representations and warranties. This Section 8.1 shall not limit any
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Effective Time or after the termination of this Agreement.
8.2 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be delivered personally, by facsimile,
by overnight courier or sent by certified or registered mail, postage prepaid,
and shall be deemed given when so delivered personally, or when so received by
facsimile or courier, or if mailed, three calendar days after the date of
mailing, as follows (or at such other address for a party as shall be specified
by like notice):
8.2.1 if to NeoStem or Subco:
NeoStem, Inc.
420 Lexington Avenue, Suite 450
New York, New York 10170
Attention: Catherine Vaczy
Telecopy: (646) 514-7787
with a copy (which shall not constitute notice) to:
Lowenstein, Sandler PC
65 Livingston Avenue
Roseland, New Jersey 07068
Attention: Alan Wovsaniker, Esq.
Telecopy No.: (973) 597-2565
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8.2.2 if to CBH or CBC:
China Biopharmaceuticals, Inc.
No. 859, Pan Xu Road
Suzhou, Jiangsu Province, China, 215000
Attention: Chris Mao
Telecopy: _______________
with a copy (which shall not constitute notice) to:
Troutman Sanders LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Howard H. Jiang, Esq.
Telecopy: (212) 704-6288
8.3 Interpretation.
8.3.1 When a reference is made in this Agreement to an Article or
Section, such reference shall be to an Article or Section of this Agreement
unless otherwise indicated. The headings and the table of contents contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
8.3.2 For purposes of this Agreement, "knowledge" of a party shall
mean the actual knowledge of all officers of such party with a title of
executive vice president or higher.
8.4 Counterparts. This Agreement may be executed in counterparts, which
together shall constitute one and the same Agreement. The parties may execute
more than one copy of the Agreement, each of which shall constitute an original.
8.5 Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) and any and all confidentiality agreements
previously entered into between NeoStem and CBH or any Subsidiary thereof
(collectively, the "Confidentiality Agreements") constitute the entire agreement
among the parties and supersede all prior agreements and understandings,
agreements or representations by or among the parties, written and oral, with
respect to the subject matter hereof and thereof.
8.6 Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended or shall be construed to create any third-party
beneficiaries.
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8.7 Governing Law. Except to the extent that the laws of the jurisdiction
of organization of any party hereto, or any other jurisdiction, are mandatorily
applicable to the Merger or to matters arising under or in connection with this
Agreement, this Agreement shall be governed by the laws of the State of
Delaware. All actions and proceedings arising out of or relating to this
Agreement shall be heard and determined exclusively in any state or federal
court sitting in the State of Delaware.
8.8 Consent to Jurisdiction; Venue.
8.8.1 Each of the parties hereto irrevocably submits to the
exclusive jurisdiction of the state courts of Delaware and the United States
District Court for the District of Delaware, for the purpose of any action or
proceeding arising out of or relating to this Agreement and each of the parties
hereto irrevocably agrees that all claims in respect to such action or
proceeding shall be heard and determined exclusively in any Delaware state or
federal court. Each of the parties hereto agrees that a final judgment in any
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
8.8.2 Each of the parties hereto irrevocably consents to the service
of any summons and complaint and any other process in any other action or
proceeding relating to the Merger, on behalf of itself or its property, by the
delivery of copies of such process to such party in the same manner as notice is
to be provided pursuant to Section 8.3. Nothing in this Section 8.9 shall affect
the right of any party hereto to serve legal process in any other manner
permitted by law.
8.9 Specific Performance. The transactions contemplated by this Agreement
are unique. Accordingly, each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be entitled, each of the parties
hereto is entitled to a decree of specific performance, provided such party is
not in material default hereunder.
8.10 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
8.11 Expenses. Subject to the provisions of Section 8.2, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that those expenses incurred in connection with filing, printing and mailing the
Registration Statement and the Prospectus/Joint Proxy Statement (including
filing fees related thereto but excluding legal and accounting fees and
expenses) and the fees and disbursements of any Third Party Firm will be shared
equally by NeoStem and CBH.
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8.12 Severability. The invalidity of any portion hereof shall not affect
the validity, force or effect of the remaining portions hereof. If it is ever
held that any restriction hereunder is too broad to permit enforcement of such
restriction to its fullest extent, such restriction shall be enforced to the
maximum extent permitted by law.
8.13 No Strict Construction. Each Party acknowledges that this Agreement
has been prepared jointly by the parties hereto, and shall not be strictly
construed against any Party.
8.14 Language Translations. Each Party acknowledges that this Agreement
has been prepared in English. In the event of a conflict between different
translations of these terms, the English translation will govern.
8.15 Disbursement of the Escrow Shares. For a period of no more than six
(6) months after the Effective Time, in case the CBH Payable Obligations,
excluding the Transaction Expenses, exceed a total of $450,000, such excess
shall be paid out of the Escrow Shares (valued at one dollar per share) with a
notice provided according to the terms of the Escrow Agreement. CBC shall not be
responsible for any payable obligations in excess beyond $450,000 and the Escrow
Shares.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, NeoStem, Subco, CBH and CBC have signed this Agreement
as of the date first written above.
NEOSTEM, INC.
By: /s/ Robin L. Smith
--------------------------
Name: Robin L. Smith
Title: Chief Executive Officer
CBH ACQUISITION LLC
By: /s/ Robin L. Smith
--------------------------
Name: Robin L. Smith
Title: Chief Executive Officer
CHINA BIOPHARMACEUTICALS
HOLDINGS, INC.
By: /s/ Chris Peng Mao
--------------------------
Name: Chris Peng Mao
Title: Chief Executive Officer
CHINA BIOPHARMACEUTICALS
CORP.
By: /s/ Chris Peng Mao
--------------------------
Name: Chris Peng Mao
Title: Chief Executive Officer
[Signature Page to Agreement and Plan of Merger]
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