CLOSING ESCROW AGREEMENT
This
Closing Escrow Agreement, dated as of, August 8, 2008 (this “Agreement”),
is
entered into by and among China New Energy Group Company, a Delaware corporation
(the “Company”),
China
Hand Fund I, LLC, a Delaware limited liability company (together with its
successors and assigns, “CHF”
or
the
“Initial
Purchaser”),
each
of the persons who hereafter become investors in the Company pursuant to the
Purchase Agreement (as defined below) (together with its successors and assigns,
each, an “Additional
Purchaser”
and
collectively, the “Additional Purchasers”), and Escrow, LLC, with an address at
000 Xxxx Xxxxxx, X.X. Xxx 000, Xxxxxxxxxx, Xxxxxxxx 00000 (the “Escrow
Agent”).
Capitalized terms used, but not defined herein shall have the meanings set
forth
in the Purchase Agreement.
WITNESSETH:
WHEREAS,
the Initial Purchaser may purchase from the Company shares of the Company’s
Series A Convertible Preferred Stock, par value $0.001 per share (the
“Series
A Preferred”),
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common
Stock”),
and
certain common stock purchase warrants (the “Warrants”)
pursuant to a Series A Convertible Preferred Stock Purchase Agreement to be
entered into on the closing date of such agreement (the “First
Closing Date”)
by and
among the Company and the Initial Purchaser (the “Purchase
Agreement”),
and
it is contemplated that each of the Purchase Agreement and this Agreement may
hereafter be amended to provide for the purchase of additional shares of Series
Preferred and Warrants (collectively, the “Securities”)
by
Additional Purchasers at one or more additional closings after the First Closing
Date (the closing date of each subsequent purchase is hereinafter referred
to as
a “Subsequent
Closing Date”);
WHEREAS,
the Company desires to deposit all monies received from Investors pending the
closings under the Purchase Agreement (the “Escrowed
Funds”)
with
the Escrow Agent, to be held in escrow until joint written instructions are
received by the Escrow Agent from the Company and the Initial Purchaser, from
time to time, at which time the Escrow Agent will disburse the Escrowed Funds
in
accordance with the instructions; and
WHEREAS,
Escrow Agent is willing to hold the Escrowed Funds in escrow in subject to
the
terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the mutual promises herein contained and
intending to be legally bound, the parties hereby agree as follows:
1.
Appointment
of Escrow Agent.
The
Company hereby appoints the Escrow Agent as escrow agent in accordance with
the
terms and conditions set forth herein and the Escrow Agent hereby accepts such
appointment.
2.
Delivery
of the Escrowed Funds.
2.1
The
Company will direct Investors to deliver the Escrowed Funds to the Escrow Agent,
addressed to the following account of the Escrow Agent:
Domestic
Wires
Virginia
Commerce Bank
Leesburg,
VA
ABA#
000000000
Account
Name: Escrow, LLC
Account
#: 00000000
International
Wires
Correspondent
Bank: Xxxxx Fargo Bank,
San
Francisco, CA
SWIFT#
XXXXXX0X
Credit
Acct: 000-00-00000
Virginia
Commerce Bank
FBO
Account Name: Escrow, LLC
Account
#: 00000000
2.2 (a)
All
Investors’ checks shall be made payable to “ESCROW, LLC and shall be delivered
to the Escrow Agent at the address set forth on Exhibit
A
hereto
and shall be
accompanied by a written account of the subscription in the form attached hereto
as Exhibit
B
(the
“Subscription
Information”).
The
Escrow
Agent shall, upon receipt of Escrowed Funds deposit such funds in
escrow.
2.3 Any
checks which are received by Escrow Agent that are made payable to a party
other
than the Escrow Agent shall be returned directly to the Company together with
any documents delivered therewith. Simultaneously with each deposit, the Company
shall provide the Escrow Agent with the Subscription Information to include
the
name, address and taxpayer identification number of each Investor. The Escrow
Agent is not obligated, and may refuse, to accept checks that are not
accompanied by Subscription Information.
2.4 In
the
event a wire transfer is received by the Escrow Agent and the Escrow Agent
has
not received Subscription Information, the Escrow Agent shall notify the
Company. If the Escrow Agent does not receive the Subscription Information
relating to an Investor prior to the close of business on the third business
day
(days other than a Saturday or Sunday or other day on which the Escrow Agent
is
not open for business in the State of Virginia) after notifying Company of
receipt of said wire, the Escrow Agent shall return the funds to the
Investor.
2
3.
Escrow
Agent to Hold and Disburse Escrowed Funds.
The
Escrow Agent will hold and disburse the Escrowed Funds received by it pursuant
to the terms of this Escrow Agreement, as follows:
3.1 Upon
receipt of joint instructions from the Company and the Initial Purchaser in
substantially the form of Exhibit
C
hereto,
the Escrow Agent shall release the Escrowed Funds as directed in such
instructions. The Company and the Initial Purchaser agree that if the Purchase
Agreement is consummated, then on the First Closing Date they will deliver
joint
written instructions to release to the Company the aggregate amount of the
subscriptions deposited by the Initial Purchaser less (x) payments to be made
for investor legal and due diligence expenses, not exceeding $100,000, (y)
placement agent fees equal to 10% of the aggregate amount of subscriptions
and
(z) $250,000 to be retained by the Escrow Agent to be used for payment of the
Company’s investor and public relations expenses. On the First Closing Date the
Company and the Initial Purchaser shall deliver joint written instructions
to
the Escrow Agent to pay the amounts referred to in clauses (x) and (y). It
is
also contemplated that if additional closings are held, then on each Subsequent
Closing Date the Initial Purchaser and the Company shall deliver joint written
instructions to the Escrow Agent to release to the Company the aggregate amount
of the subscriptions deposited by the Additional Purchasers less (A) placement
agent fees equal to 10% of the aggregate amount of the additional subscriptions
for such additional closing and (B) with respect to the Subsequent Closing
immediately following the First Closing, $250,000 to be retained by the Escrow
Agent to be used for payments of the Company’s investor and public relations
expenses.
3.2 In
the
event this Agreement, the Escrowed Funds or the Escrow Agent becomes the subject
of litigation, or if the Escrow Agent shall desire to do so for any other
reason, the Company authorizes the Escrow Agent, at its option, to deposit
the
Escrowed Funds with the clerk of the court in which the litigation is pending,
or a court of competent jurisdiction if no litigation is pending, and thereupon
the Escrow Agent shall be fully relieved and discharged of any further
responsibility with regard thereto. The Company also authorizes the Escrow
Agent, if it receives conflicting claims to the Escrow Funds, is threatened
with
litigation or if the Escrow Agent shall desire to do so for any other reason,
to
interplead all interested parties in any court of competent jurisdiction and
to
deposit the Escrowed Funds with the clerk of that court and thereupon the Escrow
Agent shall be fully relieved and discharged of any further responsibility
hereunder to the parties from which they were received.
3.3 In
the
event that the Escrow Agent does not receive any instructions by a date that
is
90 days from the date of this Agreement (the “Escrow
Termination Date”),
all
Escrowed Funds shall be returned to the parties from which they were received,
without interest thereon or deduction therefrom. If the Escrow Agent does
receive joint written instructions by the Escrow Termination Date, then the
Escrow Agent shall continue to hold all undisbursed Escrowed Funds until the
Escrow Agent receives joint written instructions from the Initial Purchaser
and
the Company covering all remaining Escrowed Funds.
3
4.
Exculpation
and Indemnification of Escrow Agent
4.1
The
Escrow Agent shall haven no duties or responsibilities other than those
expressly set forth herein. The Escrow Agent shall have no duty to enforce
any
obligation of any person to make any payment or delivery, or to direct or cause
any payment or delivery to be made, or to enforce any obligation of any person
to perform any other act. The Escrow Agent shall be under no liability to the
other parties hereto or anyone else, by reason of any failure, on the part
of
any party hereto or any maker, guarantor, endorser or other signatory of a
document or any other person, to perform such person’s obligations under any
such document. Except for amendments to this Escrow Agreement referenced below,
and except for written instructions given to the Escrow Agent by the Escrowing
Parties relating to the Escrowed funds, the Escrow Agent shall not be obligated
to recognize any agreement between or among any of the Escrowing Parties,
notwithstanding that references hereto may be made herein and whether or not
it
has knowledge thereof.
4.2 The
Escrow Agent shall not be liable to the Company or to anyone else for any action
taken or omitted by it, or any action suffered by it to be taken or omitted,
in
good faith and acting upon any order, notice, demand, certificate, opinion
or
advice of counsel (including counsel chosen by the Escrow Agent), statement,
instrument, report, or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained), which is believed
by
the Escrow Agent to be genuine and to be signed or presented by the proper
person or persons. The Escrow Agent shall not be bound by any of the terms
thereof, unless evidenced by written notice delivered to the Escrow Agent signed
by the proper party or parties and, if the duties or rights of the Escrow Agent
are affected, unless it shall give its prior written consent
thereto.
4.3 The
Escrow Agent shall not be responsible for the sufficiency or accuracy of the
form, or of the execution, validity, value or genuineness of, any document
or
property received, held or delivered to it hereunder, or of any signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable to
the
Company, the Initial Purchaser, the Additional Purchasers or to anyone else
in
any respect on account of the identity, authority or rights, of the person
executing or delivering or purporting to execute or deliver any document or
property or this Escrow Agreement. The Escrow Agent shall have no responsibility
with respect to the use or application of the Escrowed Funds pursuant to the
provisions hereof.
4.4 The
Escrow Agent shall have the right to assume, in the absence of written notice
to
the contrary from the proper person or persons, that a fact or an event, by
reason of which an action would or might be taken by the Escrow Agent, does
not
exist or has not occurred, without incurring liability to the Company, the
Initial Purchaser, the Additional Purchasers or to anyone else for any action
taken or omitted to be taken or omitted, in good faith and in the exercise
of
its own best judgment, in reliance upon such assumption.
4
4.5 To
the
extent that the Escrow Agent becomes liable for the payment of taxes, including
withholding taxes, in respect of income derived from the investment of the
Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such
taxes; and the Escrow Agent may withhold from any payment of the Escrowed Funds
such amount as the Escrow Agent estimates to be sufficient to provide for the
payment of such taxes not yet paid, and may use the sum withheld for that
purpose. The Escrow Agent shall be indemnified and held harmless against any
liability for taxes and for any penalties in respect of taxes, on such
investment income or payments in the manner provided in Section
4.6.
4.6 The
Escrow Agent will be indemnified and held harmless by the Company from and
against all expenses, including all counsel fees and disbursements, or loss
suffered by the Escrow Agent in connection with any action, suit or proceedings
involving any claim, or in connection with any claim or demand, which in any
way, directly or indirectly, arises out of or relates to this Escrow Agreement,
the services of the Escrow Agent hereunder, except for claims relating to gross
negligence by Escrow Agent or breach of this Escrow Agreement by the Escrow
Agent, or the monies or other property held by it hereunder. Promptly after
the
receipt of the Escrow Agent of notice of any demand or claim or the commencement
of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect
thereof is to be made against a party to this Agreement, notify each of them
thereof in writing, but the failure by the Escrow Agent to give such notice
shall not relieve any such party from any liability which a party may have
to
the Escrow Agent hereunder. Notwithstanding any obligation to make payments
and
deliveries hereunder, the Escrow Agent may retain and hold for such time as
it
deems necessary such amount of monies or property as it shall, from time to
time, in its sole discretion, seem sufficient to indemnify itself for any such
loss or expense and for any amounts due it under Section 7.
4.7 For
purposes hereof, the term “expense or loss” shall include all amounts paid or
payable to satisfy any claim, demand or liability, or in settlement of any
claim, demand, action, suit or proceeding settled with the express written
consent of the Escrow Agent, and all costs and expenses, including, but not
limited to, counsel fees and disbursements, paid or incurred in investigating
or
defending against any such claim, demand, action, suit or proceeding.
5.
Termination
of Agreement and Resignation of Escrow Agent
5.1 This
Escrow Agreement shall terminate upon disbursement of all of the Escrowed Funds,
provided that the rights of the Escrow Agent and the obligations of the Company
under Section 4 shall survive the termination hereof.
5
5.2 The
Escrow Agent may resign at any time and be discharged from its duties as Escrow
Agent hereunder by giving the Company at least five (5) business days written
notice thereof (the “Notice
Period”).
As
soon as practicable after its resignation, the Escrow Agent shall, if it
receives notice from the Company within the Notice Period, turn over to a
successor escrow agent appointed by the Company all Escrowed Funds (less such
amount as the Escrow Agent is entitled to retain pursuant to Section 7) upon
presentation of the document appointing the new escrow agent and its acceptance
thereof. If no new agent is so appointed within the Notice Period, the Escrow
Agent shall return the Escrowed Funds to the parties from which they were
received without interest or deduction.
6.
Form
of Payments by Escrow Agent
6.1 Any
payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of
this
Escrow Agreement shall be made by wire transfer unless directed to be made
by
check by the Company and the Initial Purchaser.
6.2
All
amounts referred to herein are expressed in United States Dollars and all
payments by the Escrow Agent shall be made in such dollars.
7. Compensation.
Escrow
Agent shall be entitled to the following compensation from the
Company:
| 7.1 |
Documentation
Fee: The
Company shall pay a documentation fee to the Escrow
Agent of $1,500, on the First Closing Date.
|
|
7.2
|
Closing
Fee:
The Company shall pay a fee of $500 to the Escrow Agent at each Closing.
For purposes of this Section 7.2, a Closing shall mean each time
the
Escrow Agent receives joint instructions from the Company and the
Initial
Purchaser to disburse Escrowed Funds in accordance with the terms
of this
Agreement.
|
| 7.3 |
Interest.
The Company hereby agrees that Escrow Agent shall retain 100% of
the interest earned during the time the Escrowed Funds are held
in
escrow
hereunder.
|
8. Notices.
All
notices, requests, demands, and other communications provided herein shall
be in
writing, shall be delivered by hand or by first-class mail, shall be deemed
given when received and shall be addressed to parties hereto at their respective
addresses first set forth in the recitals above and on Exhibit
A
hereto.
9. Further
Assurances From
time
to time on and after the date hereof, the Company shall deliver or cause to
be
delivered to the Escrow Agent such further documents and instruments and shall
do and cause to be done such further acts as the Escrow Agent shall reasonably
request (it being understood that the Escrow Agent shall have no obligation
to
make any such request) to carry out more effectively the provisions and purposes
of this Escrow Agreement, to evidence compliance herewith or to assure itself
that it is protected in acting hereunder.
6
10. Consent
to Service of Process
The
Company hereby irrevocably consents to the jurisdiction of the courts of the
State of Virginia and of any Federal court located in such state in connection
with any action, suit or proceedings arising out of or relating to this Escrow
Agreement or any action taken or omitted hereunder, and waives personal service
of any summons, complaint or other process and agrees that the service thereof
may be made by
certified or registered mail directed to it at the address listed on Exhibit
A
hereto.
11. Miscellaneous
11.1 This
Escrow Agreement shall be construed without regard to any presumption or other
rule requiring construction against the party causing such instrument to be
drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as
used in this Escrow Agreement, refer to the Escrow Agreement in its entirety
and
not only to the particular portion of this Escrow Agreement where the term
is
used. The word “person” shall mean any natural person, partnership, corporation,
government and any other form of business of legal entity. All words or terms
used in this Escrow Agreement, regardless of the number or gender in which
they
were used, shall be deemed to include any other number and any other gender
as
the context may require. This Escrow Agreement shall not be admissible in
evidence to construe the provisions of any prior agreement.
11.2 This
Escrow Agreement and the rights and obligations hereunder of the Company may
not
be assigned. This Escrow Agreement and the rights and obligations hereunder
of
the Escrow Agent may be assigned by the Escrow Agent. This Escrow Agreement
shall be binding upon and inure to the benefit of each party’s respective
successors, heirs and permitted assigns. No other person shall acquire or have
any rights under or by virtue of this Escrow Agreement. This Escrow Agreement
may not be changed orally or modified, amended or supplemented without an
express written agreement executed by the Escrow Agent, the Company and the
Initial Purchaser. This Escrow Agreement is intended to be for the sole benefit
of the parties hereto and the Additional Purchasers and their respective
successors, heirs and permitted assigns, and none of the provisions of this
Escrow Agreement are intended to be, nor shall they be construed to be, for
the
benefit of any third person.
11.3 This
Escrow Agreement shall be governed by, and construed in accordance with, the
internal laws of the State of Virginia. The representations and warranties
contained in this Escrow Agreement shall survive the execution and delivery
hereof and any investigations made by any party. The headings in this Escrow
Agreement are for purposes of reference only and shall not limit or otherwise
affect any of the terms thereof.
12.
Execution
of Counterparts This
Escrow Agreement may be executed in a number of counterparts, by facsimile,
each
of which shall be deemed to be an original as of those whose signature appears
thereon, and all of which shall together constitute one and the same instrument.
This Escrow Agreement shall become binding when one or more of the counterparts
hereof, individually or taken together, are signed by all the
parties.
[Remainder
of page intentionally left blank
Signature
pages follow]
7
IN
WITNESS WHEREOF, the parties have executed and delivered this Escrow Agreement
on the day and year first above written.
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ESCROW
AGENT:
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ESCROW,
LLC
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By:
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| COMPANY: | |||
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By:
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/s/ Jiaji Shang | ||
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Name:
Jiaji Shang
|
|||
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Title:
Chief Executive Officer
|
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INITIAL
PURCHASER:
|
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THE
CHINA HAND FUND I, LLC
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By:
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/s/ Xxxx X. Xxxxx | ||
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Name:
Xxxx X. Xxxxx
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Title:
Member-Manager
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EXHIBIT
A
PARTIES
TO AGREEMENT
00xx
Xxxxx, XxxxXx Xxxxxxxx, XxxXxx Xxxx
XxXxx
Xxxxxxxx
Tianjin,
People’s Republic of China
Attention:
_________________________
Tel.
No.:
__________________________
Fax
No.:
___________________________
Email:
____________________________________
(Signature)
Escrow,
LLC
000
Xxxx
Xxxxxx
X.X.
Xxx
000
Xxxxxxxxxx,
XX 00000
Telephone:
(000) 000-0000
Attention:
Xxxxxxx X. Xxxxxxx
Telephone:
(000) 000-0000 Fax: (000) 000-0000
Email:
xxxxxx@xxxxxxxxxxxxx.xxx
____________________________
China
Hand Fund I, LLC
000
Xxxx
Xxxx Xxxx
Xxxxxxxxx,
XX 00000
Attn:
Xxxx Xxxxxxx
Tel.
No.:
000-000-0000
Fax
No.:
000-000-0000
Email:
xxxxxxxx@xxxxxxxxxxxxx.xxx
____________________________________
(Signature)
9
EXHIBIT
B
SUBCRIPTION
INFORMATION
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Name
of Subscriber
|
||
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Address
of Subscriber
|
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Amount
of Securities
|
||
|
Subscribed
|
||
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US
Dollar Amount
|
||
|
Submitted
|
||
|
Taxpayer
ID Number/
|
||
|
Social
Security Number
|
10
EXHIBIT
C
DISBURSEMENT
REQUEST
Pursuant
to that certain Escrow Agreement by and among China New Energy Group Company,
The China Hand Fund I, LLC and Escrow, LLC., China New Energy Group Company
and
The China Hand Fund I, LLC hereby request disbursement of funds in the amount
and manner described below from Cardinal Bank account number _____________,
styled Escrow, LLC Escrow Account.
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Please
disburse to:
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||
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Amount
to disburse:
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||
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Form
of distribution:
|
||
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Payee:
|
||
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Name:
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||
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Address:
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||
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City/State:
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||
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Zip:
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Bank:
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||
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Statement
of event or condition which calls for this request for
disbursement:
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||
Disbursement
approved by:
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(Signature)
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Date
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The
China Hand Fund I, LLC
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(Signature)
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Date
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11
