Exhibit 10.4


 


STOCK ESCROW AGREEMENT


 


This STOCK ESCROW AGREEMENT,
dated as of September 30, 2021 (“Agreement”), by and among MONTEREY BIO ACQUISITION CORPORATION, a Delaware corporation
(“Company”), the initial stockholders listed on the signature pages hereto (collectively, the “Initial Stockholders”),
and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, a New York limited purpose trust company (“Escrow Agent”).


 


WHEREAS, the Company has entered
into an Underwriting Agreement, dated as of September 30, 2021 (“Underwriting Agreement”), with Chardan Capital Markets,
LLC (“Chardan”) acting as representative of the several underwriters (collectively, the “Underwriters”),
pursuant to which, among other matters, the Underwriters have agreed to purchase 10,000,000 units (“Units”) of the
Company, plus an additional 1,500,000 Units if the Underwriters exercise their over-allotment option in full. Each Unit consists of one
share of common stock of the Company, par value $0.0001 per share (the “Common Stock”), and one warrant, with each
warrant entitling the holder thereof to purchase one share of Common Stock at an exercise price of $11.50 per share, all as more fully
described in the Company’s prospectus, dated September 30, 2021 (“Prospectus”), comprising part of the Company’s
Registration Statement on Form S-1 (File No. 333-259378) under the Securities Act of 1933, as amended (“Registration Statement”),
declared effective on September 30, 2021 (“Effective Date”).


 


WHEREAS, the Initial Stockholders
have agreed as a condition of the sale of the Units to deposit their Insider Shares (as defined in the Prospectus), as set forth opposite
their respective names on Exhibit A attached hereto (collectively “Escrow Shares”), in escrow as hereinafter
provided.


 


WHEREAS, the Company and the
Initial Stockholders desire that the Escrow Agent accept the Escrow Shares, in escrow, to be held and disbursed as hereinafter provided.


 


IT IS AGREED:


 


1. Appointment of
Escrow Agent. The Company and the Initial Stockholders hereby appoint the Escrow Agent to act in accordance with and subject to the
terms of this Agreement, and the Escrow Agent hereby accepts such appointment and agrees to act in accordance with and subject to such
terms.


 


2. Deposit of Escrow
Shares. On or prior to the date hereof, each of the Initial Stockholders delivered to the Escrow Agent certificates representing such
Initial Stockholder’s respective Escrow Shares, together with applicable share powers, to be held and disbursed subject to the terms
and conditions of this Agreement. Each of the Initial Stockholders acknowledges that the certificate representing such Initial Stockholder’s
Escrow Shares is legended to reflect the deposit of such Escrow Shares under this Agreement.


 


3. Disbursement of
the Escrow Shares.


 


3.1 The Escrow Agent shall
hold the Escrow Shares during the period (the “Escrow Period”) commencing on the date hereof and (i) for 50% of
the Escrow Shares, ending on the earlier of (x) six months after the date of the consummation of the Company’s initial
business combination (as described in the Registration Statement, hereinafter a “Business Combination”) and (y) the date
on which the closing price of the Common Stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends,
reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing after the Company’s
initial Business Combination and (ii) for the remaining 50% of the Escrow Shares, ending six months after the date of the
consummation of an initial Business Combination. The Company shall promptly provide notice of the consummation of a Business
Combination to the Escrow Agent. Upon completion of the Escrow Period, the Escrow Agent shall disburse such amount of each Initial
Stockholder’s Escrow Shares (and any applicable share power) to such Initial Stockholder; provided, however, that if the
Escrow Agent is notified by the Company pursuant to Section 6.7 hereof that the Company is being liquidated at any time during the
Escrow Period, then the Escrow Agent shall promptly destroy the certificates representing the Escrow Shares; provided further,
however, that if, within six months after the Company consummates an initial Business Combination, the Company (or the surviving
entity) subsequently consummates a liquidation, merger, stock exchange or other similar transaction which results in all of the
stockholders of such entity having the right to exchange their shares of Common Stock for cash, securities or other property, then
the Escrow Agent will, upon receipt of a notice executed by the Chairman of the Board, Chief Executive Officer or other authorized
officer of the Company, in form reasonably acceptable to the Escrow Agent, certifying that such transaction is then being
consummated or such conditions have been achieved, as applicable, release the Escrow Shares to the Initial Stockholders. The Escrow
Agent shall have no further duties hereunder after the disbursement or destruction of the Escrow Shares in accordance with this
Section 3.1.


 






    1


     


    

 


3.2 Notwithstanding Section
3.1, if the Underwriters do not exercise their over-allotment option to purchase an additional 1,500,000 Units of the Company in full
within 45 days of the date of the Prospectus (as described in the Underwriting Agreement), NorthStar Bio Ventures, LLC and Chardan Monterey
Investments LLC (together, the “Co-Sponsors”) agree that the Escrow Agent shall return to the Company for cancellation, at
no cost, the number of Escrow Shares held by the Co-Sponsors listed on Exhibit B determined by multiplying (a) 281,250
in the case of NorthStar Bio Ventures, LLC and 93,750 in the case of Chardan Monterey Investments, LLC, by (b) a fraction, (i) the numerator
of which is 1,500,000 minus the number of shares of Common Stock purchased by the Underwriters upon the exercise of their over-allotment
option, and (ii) the denominator of which is 1,500,000. The Company shall promptly provide notice to the Escrow Agent of the expiration
or termination of the Underwriters’ over-allotment option and the number of Units, if any, purchased by the Underwriters in connection
with their exercise thereof.


 


4. Rights of Initial
Stockholders in Escrow Shares.


 


4.1 Voting Rights as
a Stockholder. Subject to the terms of the Insider Letters described in Section 4.4 hereof and except as herein provided, the Initial
Stockholders shall retain all of their rights as stockholders of the Company during the Escrow Period, including, without limitation,
the right to vote such shares.


 


4.2 Dividends and Other
Distributions in Respect of the Escrow Shares. During the Escrow Period, all dividends payable in cash with respect to the Escrow
Shares shall be paid to the Initial Stockholders, but all dividends payable in stock or other non-cash property (“Non-Cash Dividends”)
shall be delivered to the Escrow Agent to hold in accordance with the terms hereof. As used herein, the term “Escrow Shares”
shall be deemed to include the Non-Cash Dividends distributed thereon, if any.


 


4.3 Restrictions on
Transfer. During the Escrow Period, the only permitted transfers of the Escrow Shares will be to (1) any person (including their affiliates
and stockholders) participating in the private placement of the private warrants, officers, directors, stockholders, employees and members
of NorthStar Bio Ventures, LLC and Chardan Monterey Investments LLC and their respective affiliates, (2) to the Company’s pre-IPO
stockholders or their respective affiliates, or to the Company’s offices, directors, advisors and employees (3) if the Initial Stockholder
is an entity, as a distribution to its, partners, stockholders or members upon its liquidation, (4) by bona fide gift to a member of the
Initial Stockholder’s immediate family or to a trust, the beneficiary of which is the Initial Stockholder or a member of the Initial
Stockholder’s immediate family for estate planning purposes, (5) by virtue of the laws of descent and distribution upon death of
the Initial Stockholder, (6) pursuant to a qualified domestic relations order, (7) by certain pledges to secure obligations incurred in
connection with purchases of the Company’s securities, (8) by private sales at prices no greater than the price at which the Insider
Shares were originally purchased or (9) for the cancellation of up to 375,000 shares of Common Stock subject to forfeiture to the extent
that the Underwriters’ over-allotment is not exercised in full or in part or in connection with the consummation of our initial
Business Combination, in each case (except for clause 9 or with our prior consent) on the condition that such transfers may be implemented
only upon the respective transferee’s written agreement to be bound by the terms and conditions of this Agreement and of the Insider
Letter (as defined below) signed by the Initial Stockholder transferring the Escrow Shares.


 


4.4 Insider Letters.
Each of the Initial Stockholders has executed a letter agreement with Chardan and the Company, the form of which is filed as an exhibit
to the Registration Statement (“Insider Letter”), respecting the rights and obligations of such Initial Stockholder
in certain events, including but not limited to the liquidation of the Company.


 






    2


     


    

 


5. Concerning the
Escrow Agent.


 


5.1 Good Faith
Reliance. The Escrow Agent shall not be liable for any action taken or omitted by it in good faith and in the exercise of its
own best judgment, and may rely conclusively and shall be protected in acting upon any order, notice, demand, certificate, opinion
or advice of counsel (including counsel chosen by the Escrow Agent), statement, instrument, report or other paper or document (not
only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth and acceptability of any
information therein contained) which is believed by the Escrow Agent to be genuine and to be signed or presented by the proper
person or persons. The Escrow Agent shall not be bound by any notice or demand, or any waiver, modification, termination or
rescission of this Agreement unless evidenced by a writing delivered to the Escrow Agent signed by the proper party or parties and,
if the duties or rights of the Escrow Agent are affected, unless it shall have given its prior written consent thereto.


 


5.2 Indemnification.
The Escrow Agent shall be indemnified and held harmless by the Company from and against any expenses, including counsel fees and disbursements,
or loss suffered by the Escrow Agent in connection with any action, suit or other proceeding involving any claim which in any way, directly
or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, or the Escrow Shares held by it
hereunder, other than expenses or losses arising from the gross negligence or willful misconduct of the Escrow Agent. Promptly after the
receipt by the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall
notify the other parties hereto in writing. In the event of the receipt of such notice, the Escrow Agent, in its sole discretion, may
commence an action in the nature of interpleader in an appropriate court to determine ownership or disposition of the Escrow Shares or
it may deposit the Escrow Shares with the clerk of any appropriate court or it may retain the Escrow Shares pending receipt of a final,
non-appealable order of a court having jurisdiction over all of the parties hereto directing to whom and under what circumstances the
Escrow Shares are to be disbursed and delivered. The provisions of this Section 5.2 shall survive in the event the Escrow Agent resigns
or is discharged pursuant to Sections 5.5 or 5.6 below.


 


5.3 Compensation.
The Escrow Agent shall be entitled to reasonable compensation from the Company for all services rendered by it hereunder. The Escrow Agent
shall also be entitled to reimbursement from the Company for all expenses paid or incurred by it in the administration of its duties hereunder
including, but not limited to, all counsel, advisors’ and agents’ fees and disbursements and all taxes or other governmental
charges.


 


5.4 Further Assurances.
From time to time on and after the date hereof, the Company and the Initial Stockholders shall deliver or cause to be delivered to the
Escrow Agent such further documents and instruments and shall do or cause to be done such further acts as the Escrow Agent shall reasonably
request to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself
that it is protected in acting hereunder.


 


5.5 Resignation.
The Escrow Agent may resign at any time and be discharged from its duties as escrow agent hereunder by its giving the other parties hereto
written notice and such resignation shall become effective as hereinafter provided. Such resignation shall become effective at such time
that the Escrow Agent shall turn over to a successor escrow agent appointed by the Company, the Escrow Shares held hereunder. If no new
escrow agent is so appointed within the 60 day period following the giving of such notice of resignation, the Escrow Agent may deposit
the Escrow Shares with any court it reasonably deems appropriate.


 


5.6 Discharge of Escrow
Agent. The Escrow Agent shall resign and be discharged from its duties as escrow agent hereunder if so requested in writing at any
time by the other parties hereto, jointly, provided, however, that such resignation shall become effective only upon acceptance of appointment
by a successor escrow agent as provided in Section 5.5.


 


5.7 Liability. Notwithstanding
anything herein to the contrary, the Escrow Agent shall not be relieved from liability hereunder for its own gross negligence or its own
willful misconduct.


 


5.8 Waiver. The
Escrow Agent hereby waives any right of set-off or any other right, title, interest or claim of any kind (“Claim”)
in, or to any distribution of, the Trust Account (as defined in that certain Investment Management Trust Agreement, dated as of the date
hereof, by and between the Company and the Escrow Agent as trustee thereunder) and hereby agrees not to seek recourse, reimbursement,
payment or satisfaction for any Claim against the Trust Account for any reason whatsoever.


 









    3


     


    

 


6. Miscellaneous.


 


6.1 Governing Law.
This Agreement shall for all purposes be deemed to be made under and shall be construed in accordance with the laws of the State of New
York, without giving effect to conflicts of law principles that would result in the application of the substantive laws of another jurisdiction.


 


6.2 Third Party Beneficiaries.
Each of the Initial Stockholders hereby acknowledges that Chardan is a third party beneficiary of this Agreement and this Agreement may
not be modified or changed without the prior written consent of Chardan.


 


6.3 Entire Agreement.
This Agreement contains the entire agreement of the parties hereto with respect to the subject matter hereof and, except as expressly
provided herein, may not be changed or modified except by an instrument in writing signed by the party to the charged.


 


6.4 Headings. The
headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation thereof.


 


6.5 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their legal representatives, successors
and assigns.


 


6.6 Notices. Any
notice or other communication required or which may be given hereunder shall be in writing and either be delivered personally or be mailed,
certified or registered mail, or by private national courier service, return receipt requested, postage prepaid, and shall be deemed given
when so delivered personally or, if mailed, two days after the date of mailing, as follows:


 


	If to the Company, to:	Monterey Bio Acquisition Corporation
	 	17 State Street
	 	21st Floor
	 	New York, NY 10004
	 	Attn: Chief Executive Officer
	 	Email: sanjeev@montereybio.com





 


	If to a Stockholder, to his address set forth in Exhibit
    A.
	 
	and if to the Escrow Agent, to:	Continental Stock Transfer & Trust Company
	 	1 State Street, 30th Floor
	 	New York, New York 10004
	 	Attn: Account Administration Department
	 	Email: accountadmin@continentalstock.com





 


	A copy (which copy shall not constitute notice) sent hereunder shall be sent to:
	 
	 	Chardan Capital Markets LLC
	 	17 State Street, 21st Floor
	 	New York, NY 10004
	 	Attn: Shai Gerson
	 	Email: sgerson@chardan.com





 


	and:	Greenberg
    Traurig, LLP
	 	1750 Tysons Boulevard,
    Suite 1000
	 	McLean, Virginia 22102
	 	Attn: Jason Simon
	 	Email:
    simonj@gtlaw.com









 


The parties may change the
persons and addresses to which the notices or other communications are to be sent by giving written notice to any such change in the manner
provided herein for giving notice.





 






    4


     


    

 


6.7 Liquidation of the
Company. The Company shall give the Escrow Agent written notification of the liquidation and dissolution of the Company in the event
that the Company fails to consummate a Business Combination within the time period specified in the Prospectus.


 


[Signature Page Follows]


 






    5


     


    

 


WITNESS the execution of this
Agreement as of the date first above written.


 


	 	COMPANY:
	 	 
	 	MONTEREY BIO ACQUISITION CORPORATION
	 	 
	 	By:	/s/
Sanjeev Satyal
	 	 	Name: Sanjeev Satyal
	 	 	Title:   Chief Executive Officer
	 	 	 
	 	CONTINENTAL STOCK TRANSFER & TRUST COMPANY
	 	 
	 	By:	/s/ Erika Young
	 	 	Name: Erika Young
	 	 	Title: Vice President
	 	 	 
	 	INITIAL STOCKHOLDERS:
	 	 
	 	NORTHSTAR BIO VENTURES, LLC
	 	 
	 	By:	/s/ Sandip I.
Patel
	 	 	Name: Sandip I. Patel
	 	 	Title:   Manager
	 	 	 
	 	CHARDAN MONTEREY INVESTMENTS LLC
	 	 	 
	 	By:	/s/ Jonas Grossman
	 	 	Name: Jonas Grossman
	 	 	Title:   Manager



 


	 	/s/ Sanjeev Satyal
	 	Sanjeev Satyal
	 	 
	 	/s/ William McKeever
	 	William McKeever
	 	 
	 	/s/ Jonas Grossman
	 	Jonas Grossman
	 	 
	 	/s/ Frances K. Heller
	 	Frances K. Heller
	 	 
	 	/s/ James R. Neal
	 	James R. Neal
	 	 
	 	/s/ Sandip I. Patel, Esq.
	 	Sandip I. Patel, Esq. 
	 	 



 


[Signature Page to Escrow Agreement]





 






     


     


    

 


EXHIBIT A


 


Initial Stockholders


 


	Name of Initial Stockholder	 	Number
 of Shares	 
	NorthStar Bio Ventures, LLC	 	 	1,912,500
	 
	Chardan Monterey Investments LLC	 	 	637,500
	 
	Sanjeev Satyal	 	 	150,000	 
	William McKeever	 	 	35,000	 
	Jonas Grossman	 	 	35,000	 
	Frances K. Heller	 	 	35,000	 
	James R. Neal	 	 	35,000	 
	Sandip I. Patel, Esq	 	 	35,000	 



 






     


     


    

 


EXHIBIT B


 


Escrow Shares


 


NorthStar Bio Ventures, LLC – 1,912,500


 


Chardan Monterey Investments LLC – 637,500