ESCROW AGREEMENT
THIS
ESCROW AGREEMENT (this "Escrow Agreement") is
made and executed as of October 27, 2009 among VLOV, Inc., a Nevada corporation
(the "Company"), Gilford
Securities Incorporated, as the placement agent (the "Placement Agent"),
Corporate Stock Transfer, Inc., as the escrow manager (the "Escrow Manager"), and
United Western Bank, as the bank escrow agent (the "Bank Escrow
Agent"). Capitalized terms used but not defined herein shall
have the meaning set forth in the Securities Purchase Agreement (as defined
below).
RECITALS
A. The
Company is in the process of raising capital in an offering (the "Offering") placed by
the Placement Agent of up to an aggregate of 2,797,203 shares of the Company's
newly-designated Series A preferred stock, par value $0.00001 per share ("Preferred Stock"),
for a purchase price of $2.86 per share and for an aggregate purchase price of
up to $8,000,000.58. Each purchaser ("Purchaser") in the
Offering shall also be entitled, for no additional consideration, to one warrant
("Warrant") to
purchase one share of the Company's common stock, par value $0.00001 per share
("Common
Stock"), at an exercise price of $3.43 per share, for every two shares of
Preferred Stock purchased in the Offering.
B. Each
Purchaser subscribing to purchase Preferred Stock and Warrants will enter into
the Securities Purchase Agreement with the Company and the other Purchasers
party thereto (the “Securities Purchase
Agreement”) and will tender such Purchaser's aggregate purchase price for
the Preferred Stock (the "Purchase Price") to
an escrow account established pursuant to this Escrow Agreement (the "Escrow
Account").
C. The
Company will close upon $4,000,000 of Preferred Stock and Warrants on or before
October 23, 2009 (the "Initial Closing"),
and will close upon such additional amount of Preferred Stock and Warrants, if
any, that may be sold on or before November 6, 2009 (the "Final Closing", and
together with the Initial Closing, the "Closings"), up to an
aggregate of $8,000,000.58 in both Closings.
D. The
aggregate Purchase Price received from all Purchasers (the "Escrow Funds") will
be held in the Escrow Account until such time as the Company and the Placement
Agent authorize the Escrow Manager to release such funds to the Company at the
Initial Closing and the Final Closing in accordance with the terms hereof;
provided that the Company acknowledges and agrees that (i) $150,000 of the
Escrow Funds shall be retained from the proceeds of the Initial Closing (the
"IR Cash"), and
(ii) the Company shall deposit 300,000 Warrants (the "IR Warrants"), in
each case for distribution to investor relations firms acceptable to ARC China,
Inc. (“ARC
China”), as a consultant for the Purchasers ("IR Firms"), as
compensation for their services and expenses incurred for a period of 12 months
from the date of the Final Closing (the "IR
Period").
NOW, THEREFORE, in consideration of the
mutual agreements and covenants contained herein, the parties hereto, intending
to be legally bound hereby, agree as follows:
1. Appointment of Escrow
Manager; Deposit of Escrow Funds. The Placement Agent and the
Company hereby appoint the Escrow Manager as their agent and custodian to invest
and disburse the Escrow Funds deposited with the Escrow Manager pursuant to the
terms of this Escrow Agreement. The Placement Agent and the Company
further appoint the Escrow Manager as their agent and custodian to invest and
disburse the IR Cash and the IR Warrants deposited with the Escrow Manager to IR
Firms pursuant to this Escrow Agreement.
2. Methods of Disposition of
the Escrow Funds. The Escrow Manager will invest the Escrow
Funds, the IR Cash and the IR Warrants as specified in this Escrow Agreement
until authorized hereunder to deliver such Escrow Funds, IR Cash and IR
Warrants, or a portion thereof, as follows:
(a) At the
Initial Closing, upon receipt of a certificate in the form of Schedule I attached
hereto executed by the Placement Agent and the Company, the Escrow Manager shall
deliver the aggregate Purchase Price received from all Purchasers in the Initial
Closing, net of the IR Cash to be held in escrow for release to IR Firms, as
directed in such certificate;
(b) At the
Final Closing, upon receipt of a certificate in the form of Schedule II attached
hereto executed by the Placement Agent and the Company, the Escrow Manager shall
deliver the aggregate Purchase Price received from all Purchasers in the Final
Closing, if any, as directed in such certificate;
(c) At any
time during the IR Period, upon receipt of a certificate or certificates in the
form of Schedule
III attached hereto executed by the Placement Agent, the Escrow Manager
shall deliver all or any portion of the IR Cash and IR Warrants to the IR Firms
and in the amounts specified therein;
(d) At the
expiration of the IR Period, upon receipt of a written request from the Company,
the Escrow Manager shall deliver to the Company the portion of the IR Cash and
IR Warrants, if any, that have not been distributed to IR Firms pursuant to Section
(c); or
3. Purpose of the Escrow
Account. The Placement Agent and the Company acknowledge and
agree that the purpose of the Escrow Account is twofold: (i) to hold the
aggregate Purchase Price received from the Purchasers pending receipt of
instructions for release in accordance with Section 2 at the
Initial Closing and the Final Closing, if any; and (ii) to hold the IR Cash and
IR Warrants for distribution to the IR Firms and in the amounts specified by ARC
China.
4. Relationship Between Escrow
Manager and Bank Escrow Agent. The Bank Escrow Agent shall
take directions only from the Escrow Manager with respect to the Escrow Funds,
IR Cash and IR Warrants.
5. Non-Interest Bearing
Account. The Escrow Manager shall deposit the Escrow Funds and
IR Cash into a non-interest bearing account held with the Bank Escrow
Agent.
6. Concerning the Escrow
Manager.
(a) The
Escrow Manager shall not be under any duty to give the Escrow Funds, IR Cash and
IR Warrants held by it hereunder any greater degree of care than it gives its
own similar property and shall not be required to invest any funds held
hereunder except as directed pursuant to Section 5 of this Escrow Agreement.
(b) This
Escrow Agreement expressly sets forth all the duties of the Escrow Manager with
respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this Escrow Agreement against the Escrow
Manager. The Escrow Manager shall not be bound by the provisions of
any other agreement among the parties hereto except this Escrow
Agreement.
(c) The
Escrow Manager shall not be liable, except for its own gross negligence, willful
misconduct or breach of this Escrow Agreement, and, except with respect to
claims based upon such gross negligence, willful misconduct or breach of this
Escrow Agreement, that are successfully asserted against the Escrow Manager, the
other parties hereto shall jointly and severally indemnify and hold harmless the
Escrow Manager (and any successor Escrow Manager) from and against any and all
losses, liabilities, claims, actions, damages and expenses, including reasonable
attorney's fees and disbursements, arising out of and in connection with this
Escrow Agreement. Without limiting the foregoing, the Escrow Manager
shall in no event be liable in connection with its investment or reinvestment of
any Escrow Funds, IR Cash or IR Warrants held by it hereunder in good faith, in
accordance with the terms hereof, including, without limitation, any liability
for any delays (not resulting from its gross negligence, willful misconduct or
breach of this Escrow Agreement) in the investment or reinvestment of the Escrow
Funds, IR Cash or IR Warrants or any loss of interest incident to any such
delays.
(d) The
Escrow Manager shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the proprieties, validity or the
service thereof. The Escrow Manager may act in reliance upon any
instrument or signature reasonably believed by it to be genuine and may assume
that any person purporting to give notice or advice, accept receipt of or
execute any document, or make any statement in connection with the provisions
hereof, has been duly authorized to do so.
(e) The
Escrow Manager may act pursuant to the advice of counsel with respect to any
matter relating to this Escrow Agreement and shall not be liable for any action
taken or omitted in accordance with such advice, except for any action
constituting gross negligence, willful misconduct or a breach of this Escrow
Agreement.
(f) The
Escrow Manager is serving as escrow manager only and has no interest in the
Escrow Funds, IR Cash or IR Warrants deposited hereunder. Any
payments of income from this Escrow Agreement shall be subject to withholding
regulations then in force with respect to United States Taxes. The
Company will provide the Escrow Manager with appropriate W-9 forms for tax
identification number certification or nonresident alien
certifications. This Section 6(f) and Section 6(c) shall survive notwithstanding any
termination of this Escrow Agreement or the resignation of the Escrow
Manager.
(g) The
Escrow Manager makes no representation as to the validity, value, genuineness or
the collectibility of any security or other documents or instrument held by or
delivered to it.
(h) The
Escrow Manager shall not be called upon to advise any party as to the wisdom in
selling or retaining or taking or refraining from any action with respect to any
securities or other property deposited hereunder.
(i) The
Escrow Manager (and any successor Escrow Manager) may at any time resign as such
by delivering the Escrow Funds, IR Cash and IR Warrants to any successor Escrow
Manager jointly designated by the other parties hereto in writing, or to any
court of competent jurisdiction, whereupon the Escrow Manager shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Manager
will take effect on the earlier of (i) the appointment of a successor (including
a court of competent jurisdiction) or (ii) the day which is 30 days after the
date of delivery of its written notice of resignation to the other parties
hereto. If at that time the Escrow Manager has not received a
designation of a successor Escrow Manager, the Escrow Manager's sole
responsibility after that time shall be to safekeep the Escrow Funds, IR Cash
and IR Warrants until receipt of a designation of successor Escrow Manager or a
joint written disposition instruction by the other parties hereto or a final
order of a court of competent jurisdiction.
(j) The
Escrow Manager shall have no responsibility for the contents of any writing of
the arbitrators or any third party contemplated herein as a means to resolve
disputes and may rely without any liability upon the contents
thereof.
(k) In the
event of any disagreement between the other parties hereto resulting in adverse
claims or demands being made in connection with the Escrow Funds, IR Cash or IR
Warrants or in the event that the Escrow Manager in good faith is in doubt as to
what action it should take hereunder, the Escrow Manager shall be entitled to
retain the Escrow Funds, IR Cash or IR Warrants until the Escrow Manager shall
have received (i) a final nonappealable order of a court of competent
jurisdiction directing delivery of the Escrow Funds, IR Cash or IR Warrants or
(ii) a written agreement executed by the other parties hereto directing delivery
of the Escrow Funds, IR Cash or IR Warrants, in which event the Escrow Manager
shall disburse the Escrow Funds, IR Cash or IR Warrants in accordance with such
order or agreement. Any court order referred to in clause (i) above
shall be accompanied by a legal opinion of counsel for the presenting party
satisfactory to the Escrow Manager to the effect that said court order is final
and nonappealable. The Escrow Manager shall act on such court order
and legal opinions without further question.
(l) Notwithstanding
anything to the contrary contained herein, in the event of any dispute between
the parties hereto as to the facts of default, the validity or meaning of these
instructions or any other fact or matter relating to the transaction between the
parties, the Escrow Manager is instructed as follows:
(i) That it
shall be under no obligation to act, except as and to the extend directed under
process or order of court, or until it has been adequately indemnified to its
full satisfaction, and shall sustain no liability for its failure to act pending
such process or court order or indemnification; and
(ii) That it
may in its sole and absolute discretion, deposit the property herein or so much
thereof as remains in its hands with the then Clerk, or acting Clerk, of the
District Court of the City and County of Denver, State of Colorado, interplead
the parties hereto, and upon so depositing such property and filing its
complaint in interpleader it shall be relieved of all liability under the terms
hereof as to the property so deposited, and furthermore, the parties hereto for
themselves, their heirs, legal representatives, successors and assigns do hereby
submit themselves to the jurisdiction of said court and do hereby appoint the
then Clerk, or acting Clerk, of said court as their Agent for the service of all
process in connection with such proceedings. The institution of any
such interpleader action shall not impair the rights of the Escrow Manager under
Section 6(c) above.
(m) The
Company agrees to pay the Escrow Manager as compensation for the services of the
Escrow Manager hereunder, an aggregate of $3,000 per year as payment in
full for the services to be rendered by the Escrow Manager
hereunder. In addition, the Company agrees to pay all reasonable
expenses, disbursements and advances incurred or made by the Escrow Manager in
performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel).
(n) No
printed or other matter in any language (including, without limitation,
prospectuses, notices, reports and promotional materials) which mentions the
Escrow Manager's name or the rights, powers or duties of the Escrow Manager
shall be issued by the other parties hereto or on such parties' behalf unless
the Escrow Manager shall first have given its specific written consent to such
mention(s).
7. Notices. Any
notice, request, demand, waiver, consent, approval or other communication which
is required or permitted hereunder shall be in writing. All such
notices shall be delivered personally, by facsimile or by reputable overnight
courier (costs prepaid), and shall be deemed given or made when delivered
personally, the business day sent if sent by facsimile or one business day after
delivery to the overnight courier for next business day delivery. All
such notices are to be given or made to the parties at the following addresses
(or to such other address as any party may designate by a notice given in
accordance with the provisions of this Section):
If to the
Company:
VLOV, Inc.
No. 1749-1751 Xiangjiang
Road
Shishi City, Fujian
Province
P.R. China
Attention: Xxxxxxxx
Xx
Facsimile: x00 000
00000000
With a copy to (which shall not be
deemed notice):
Xxxxxxxxxx & Xxxxx LLP
00000 Xxxxxxxx Xxxxxxxxx, Xxxxx
000
Xxx Xxxxxxx, Xxxxxxxxxx
00000
Attention: Xxxxx X. Xxxxx,
Esq.
Facsimile: (000) 000-0000
If to the
Placement Agent:
Gilford Securities
Incorporated
000 Xxxxx Xxxxxx, 00xx
Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx
Xxxxx
Facsimile: (000)
000-0000
If to the Escrow Manager:
Corporate Stock Transfer,
Inc.
0000 Xxxxxx Xxxxx Xxxxx, Xxxxx
000
Xxxxxx, XX 00000
Attention: Xxxxxxx
Xxxx
Facsimile: (000)
000-0000
If to the Bank Escrow Agent:
United Western Bank
000 Xxxxxxxxxxx Xxxxxx, Xxxxx
000
Xxxxxx, XX 00000
Attention: Xxxx
Xxxxxxx
Facsimile: ________________
8. Waivers and
Amendments. This Escrow Agreement may be amended, superseded,
canceled, renewed or extended and the terms hereof may be waived only by a
written instrument signed by the Placement Agent and the Company.
9. Counterparts; Facsimile
Signatures. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures
provided by facsimile or electronic transmission will be deemed to be original
signatures.
10. Governing Law;
Severability. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of Colorado,
without reference to the choice of law or conflicts of law principles
thereof. Should any clause, section or part of this Agreement be held
or declared to be void or illegal for any reason, all other clauses, sections or
parts of this Agreement shall nevertheless continue in full force and
effect.
11. Assignment. Neither
the rights nor the obligations of any party to this Agreement may be transferred
or assigned, except by the express written agreement of the parties
hereto. Any purported assignment of this Agreement shall be null,
void and of no effect.
12. Termination. This
Escrow Agreement shall terminate upon the complete distribution of the Escrow
Funds, the IR Cash and the IR Warrants in accordance with the terms
hereof. If any Escrow Funds are subject to a dispute under Section
6(l), this Escrow Agreement shall remain in full force and effect until such
dispute is resolved in accordance with such Section 6(l).
13. Binding
Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective representatives, successors
and permitted assigns.
* * * *
*
IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be signed on the date and year first written
above.
THE COMPANY:
VLOV,
INC.
By:
_____________________________
Name: Xxxxxxxx
Xx
Title: Chief
Executive Officer
THE PLACEMENT AGENT:
GILFORD
SECURITIES INCORPORATED
By: _____________________________
Name: Xxxxxx
Xxxxx
Title: President
THE ESCROW
MANAGER:
CORPORATE STOCK TRANSFER,
INC.
By: _______________________________
Name: Xxxxxxx
Xxxx
Title: President
BANK ESCROW
AGENT:
UNITED WESTERN BANK
By: _______________________________
Name: _______________________________
Title: _______________________________
