SECURITIES ESCROW AGREEMENT
EXHIBIT
10.2
This
SECURITIES ESCROW AGREEMENT (this “Agreement”), dated as
of August 21, 2009, is entered into by and among ChinaNet Online Holdings, Inc.,
a Nevada corporation (the “Company”), Sansar
Capital Management, as representative of the Purchasers (the “Purchaser
Representative”), Rise King Investments Limited, a company organized in
the British Virgin Islands (the “Principal
Stockholder”), and Loeb & Loeb LLP (the “Escrow
Agent”). Capitalized terms used but not defined herein shall
have the meanings set forth in the Purchase Agreement (as defined
below).
WITNESSETH:
WHEREAS,
the Company intends to consummate a private placement transaction with certain
accredited investors, non U.S. persons and/or qualified institutional buyers
(the “Purchasers”), whereby
the Company will issue units (the “Units”), each
consisting of (i) one (1) share of the Company’s Series A Convertible
Preferred Stock, par value $0.001 per share (the “Preferred Shares”),
initially convertible into one (1) share of the Company’s common stock, par
value $0.001 per share (the “Common Stock”)
(subject to adjustment), and (ii) a Series A-1 Warrant (the “Series A Warrant”)
and Series A-2 Warrant (the “Series A-2 Warrant”,
collectively the “Warrants”), with each
Warrant exercisable to purchase the number of shares of Common Stock equal to
fifty percent (50%) of the number of Units purchased by each Purchaser(the
“Financing
Transaction”);
WHEREAS,
in connection with the Financing Transaction, the Company entered into a
Securities Purchase Agreement, dated as of the date hereof (the “Purchase Agreement”),
by and among the Company and the Purchasers, and certain other agreements,
documents, instruments and certificates necessary to carry out the purposes
thereof (collectively, the “Transaction
Documents”);
WHEREAS,
as an inducement to the Purchasers to enter into the Purchase Agreement, the
Principal Stockholder has agreed to place stock certificates representing
2,558,160 shares of Common Stock (the “Escrow Shares”) into
escrow for the benefit of the Purchasers in the event the Company fails to
achieve certain financial performance thresholds for each of the 12-month
periods ending December 31, 2009 and December 31, 2010; and
WHEREAS,
the Company and the Purchaser Representative have requested that the Escrow
Agent hold the Escrow Shares on the terms and conditions set forth in this
Agreement and the Escrow Agent has agreed to act as escrow agent pursuant to the
terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the covenants and mutual promises contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE
I
TERMS
OF THE ESCROW
1.1.
Appointment of Escrow
Agent. The parties hereby agree to appoint Loeb & Loeb LLP
as Escrow Agent (the “Escrow Agent”), to
act in accordance with the terms and conditions set forth in this Agreement, and
Escrow Agent hereby accepts such appointment and agrees to act in accordance
with such terms and conditions.
1.2
Establishment of
Escrow Account. Upon the execution of this Agreement, the
Principal Stockholder shall deliver to the Escrow Agent the Escrow Shares, along
with a stock power executed in blank, signature medallion guaranteed or in other
form and substance acceptable for transfer. The Escrow Agent shall
hold the Escrow Shares and distribute the same as contemplated by this
Agreement. Of the Escrow Shares, 1,279,080 shares (or 50% of
the Escrow Shares) shall be held and distributed pursuant to the terms of this
Agreement for the 2009 PT (as hereinafter defined), and the remaining 50% of the
Escrow Shares shall be held and distributed pursuant to the terms of this
Agreement for the 2010 PT (as hereinafter defined).
1.3 Performance
Thresholds. The distribution of the Escrow Shares shall be
based upon the following performance thresholds (the “Performance
Thresholds”) for the fiscal years ended December 31, 2009 (“Fiscal Year 2009”)
and December 31, 2010 (“Fiscal Year
2010”):
(a) The
Fiscal Year 2009 Performance Threshold shall be audited Net Income equal to or
greater than $7,700,000 (the “2009
PT”);
(b) The
Fiscal Year 2010 Performance Threshold shall be audited Net Income equal to or
greater than $14,000,000 (the “2010
PT”);
(c) For
the purposes of this Agreement, “Net Income” shall be
defined in accordance with US GAAP and reported by the Company in its audited
financial statements for each of the Fiscal Year 2009 and Fiscal Year 2010;
provided, however, that Net
Income for each of Fiscal Year 2009 and Fiscal Year 2010 shall be increased by
any non-cash charges incurred (i) as a result of the Financing Transaction,
including without limitation, as a result of the issuance and/or conversion of
the Preferred Shares, and the issuance and/or exercise of the Warrants, (ii) as
a result of the release of the Escrow Shares to the Principal Stockholder and/or
the Purchasers, as applicable, pursuant to the terms of this Agreement, (iii) as
a result of the issuance of ordinary shares of the Principal Stockholder to
Messrs. Xxxxxxx Xxxxx and Xxxxxx Xxx and Ms. Xx Xxx (the “PRC Shareholders”),
upon the exercise of options granted to the PRC Shareholders by the Principal
Stockholder, as of the date hereof, (iv) as a result of the issuance of warrants
to any placement agent and its designees in connection with the Financing
Transaction, (v) the exercise of any warrants to purchase Common Stock
outstanding as of the date hereof, and (vi) the issuance under any performance
based equity incentive plan adopted by the Company.
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1.4 Determination of 2009 PT and
2010 PT.
(a) The
2009 PT and 2010 PT shall be determined as of the date of the Company’s audited
financial statements for the corresponding fiscal year are required to be filed
with the Commission pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and,
if the Company is not required to file reports pursuant to Section 13(a) or
Section 15(d) of the Exchange Act, and therefore prepares and furnishes the
documents required by Section 6 of the Registration Rights Agreement, the
2009 PT and 2010 PT shall be determined in accordance with such prepared
documents at such time.
(b) The
Company will provide the Purchaser Representative with the Company’s audited
financial statements for the appropriate fiscal year, prepared in accordance
with US GAAP, no later than the date for filing the Company’s Annual Report on
Form 10-K for the corresponding fiscal year, including any extension for filing
the Annual Report which may be requested under Rule 12b-25 of the Securities
Exchange Act of 1934, as amended (the “Annual Report”), with
the Securities and Exchange Commission (“SEC”) so as to allow
the Purchaser Representative the opportunity to evaluate whether each of the
2009 PT and 2010 PT were attained. The Purchaser Representative
shall, promptly upon receipt of such financial statements (and in any event no
later than two (2) business days thereafter), provide each of the Purchasers
with copies of such financial statements and proposed Disbursement Instructions
(as defined below) (collectively, the “Proposed Disbursement
Materials”).
1.5
Distribution of the Escrow
Shares. The parties hereby agree that the Escrow Shares shall
be distributed for the 2009 PT and the 2010 PT based on the following
formula:
(a) In
the event the Company achieves at least 95% of the applicable Performance
Threshold, all of the Escrow Shares for the corresponding fiscal year shall be
returned to the Principal Stockholder.
(b) If
the Company achieves less than 95% of the applicable Performance Threshold, the
Purchasers shall receive in the aggregate, on a pro rata basis (based upon the
number of Preferred Shares or Conversion Shares owned by each such Purchasers as
of the date of distribution of the Escrow Shares), 63,954 shares of the Escrow
Shares for each percentage by which the applicable Performance Threshold was not
achieved up to the total number of Escrow Shares for the applicable fiscal
year.
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No
earlier than five (5) and no later than ten (10) business days after the
Purchaser Representative’s delivery to each of the Purchasers of the Proposed
Disbursement Materials pursuant to Section 1.4 hereof, the Company and the
Purchaser Representative shall provide joint written instructions to the Escrow
Agent (the “Disbursement
Instructions”) instructing the Escrow Agent to issue and deliver the
applicable Escrow Shares in accordance with the calculations
above. Notwithstanding anything to the contrary set forth in this
Agreement, (i) if Escrow Shares are distributed pursuant to Section 1.5(b)
above, only those Purchasers who own Preferred Shares or Conversion Shares of
the Company at the time that the Escrow Shares are distributed hereunder shall
be entitled to receive the applicable Escrow Shares calculated based on their
ownership interest on the distribution date and (ii) the Purchaser
Representative shall have no authority to provide or to cause to be provided the
Disbursement Instructions to the Escrow Agent if Purchasers holding at least a
majority of the Preferred Shares on the distribution date (based on the
aggregate number of Preferred Shares held by all of the Purchasers on the
distribution date), by notice given to the Purchaser Representative no later
than five (5) business days after their receipt of the Proposed Disbursement
Materials pursuant to Section 1.4 hereof, dispute the calculation of the 2009
PT, the 2010 PT and/or the Escrow Shares to be distributed to the Purchasers or
returned to the Principal Stockholder, as the case may be. Any Escrow
Shares not delivered to any Purchaser because such Purchaser no longer holds
Preferred Shares or Conversion Shares shall be returned to the Principal
Stockholder.
If the
Company does not achieve the 2009 PT or the 2010 PT, the Company shall use
reasonable best efforts to promptly cause the applicable Escrow Shares to be
delivered to the Purchasers, including causing its transfer agent to promptly,
but in no event longer than five (5) business days after delivery of the
Disbursement Instructions, transfer the certificates into the names of the
Purchasers. The Company shall also instruct its securities counsel to
provide any written instruction required by the Escrow Agent or the transfer
agent in a timely manner so that the issuances and delivery contemplated above
can be achieved within seven (7) business days following delivery of the Fiscal
Year 2009 Annual Report or the Fiscal Year 2010 Annual Report, as applicable, to
the Purchaser Representative.
ARTICLE
II
REPRESENTATIONS
OF THE PRINCIPAL STOCKHOLDER
2.1 Representations and
Warranties. The Principal Stockholder hereby represents and
warrants to the Purchasers and the Purchaser Representative as
follows:
(i)
The Principal Stockholder is the record and beneficial owner of the Escrow
Shares placed into escrow and owns the Escrow Shares, free and clear of all
pledges, liens, claims and encumbrances, except encumbrances created by this
Agreement. There are no restrictions on the ability of the Principal
Stockholder to transfer the Escrow Shares, other than transfer restrictions
under the Lock-Up Agreement and/or applicable federal and state securities
laws.
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(ii)
The performance of this Agreement and compliance with the provisions hereof will
not violate any provision of any law applicable to the Principal Stockholder and
will not conflict with or result in any material breach of any of the terms,
conditions or provisions of, or constitute a default under the terms of the
certificate of incorporation or by-laws of the Principal Stockholder, or any
indenture, mortgage, deed of trust or other agreement or instrument binding upon
the Principal Stockholder or affecting the Escrow Shares or result in the
creation or imposition of any lien, charge or encumbrance upon, any of the
properties or assets of the Principal Stockholder, the creation of which would
have a material adverse effect on the business and operations of the Principal
Stockholder. No notice to, filing with, or authorization,
registration, consent or approval of any governmental authority or other person
is necessary for the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby by the Principal
Stockholder, other than those already obtained. Upon the transfer of the Escrow
Shares to the Purchasers pursuant to this Agreement, the Purchasers
will be the record and beneficial owners of all of such shares and have good and
valid title to all of such shares, free and clear of all
encumbrances.
ARTICLE
III
ESCROW
AGENT
3.1. The
Escrow Agent’s duties hereunder may be altered, amended, modified or revoked
only by a writing signed by the Company, the Principal Stockholder, the
Purchaser Representative and the Escrow Agent.
3.2. The
Escrow Agent shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by the Escrow Agent
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be personally liable for any act the Escrow
Agent may do or omit to do hereunder as the Escrow Agent while acting in good
faith and in the absence of gross negligence, fraud or willful misconduct, and
any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow
Agent’s attorneys-at-law shall be conclusive evidence of such good faith, in the
absence of gross negligence, fraud or willful misconduct.
3.3. The
Escrow Agent is hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree,
the Escrow Agent shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
3.4. The
Escrow Agent shall not be liable in any respect on account of the identity,
authorization or rights of the parties executing or delivering or purporting to
execute or deliver any documents or papers deposited or called for thereunder in
the absence of gross negligence, fraud or willful misconduct.
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3.5. The
Escrow Agent shall be entitled to employ such legal counsel and other experts as
the Escrow Agent may deem necessary to properly advise the Escrow Agent in
connection with the Escrow Agent’s duties hereunder, may rely upon the advice of
such counsel, and may pay such counsel reasonable compensation therefor which
shall be paid by the Escrow Agent. The Escrow Agent has acted as legal
counsel for the Company. The Company and the Purchasers consent to the Escrow
Agent in such capacity as legal counsel for the Company and waive any claim that
such representation represents a conflict of interest on the part of the Escrow
Agent. The Company and the Purchasers understand that the Escrow Agent is
relying explicitly on the foregoing provision in entering into this Escrow
Agreement.
3.6. The
Escrow Agent’s responsibilities as escrow agent hereunder shall terminate if the
Escrow Agent shall resign by giving written notice to the Company and the
Purchasers. In the event of any such resignation, the Purchasers and the Company
shall appoint a successor Escrow Agent and the Escrow Agent shall deliver to
such successor Escrow Agent any escrow funds and other documents held by the
Escrow Agent.
3.7. If
the Escrow Agent reasonably requires other or further instruments in connection
with this Escrow Agreement or obligations in respect hereto, the necessary
parties hereto shall use its best efforts to join in furnishing such
instruments.
3.8. It
is understood and agreed that should any dispute arise with respect to the
delivery and/or ownership or right of possession of the documents or the Escrow
Shares held by the Escrow Agent hereunder, the Escrow Agent is authorized and
directed in the Escrow Agent’s sole discretion (1) to retain in the Escrow
Agent’s possession without liability to anyone all or any part of said documents
or the Escrow Shares until such disputes shall have been settled either by
mutual written agreement of the parties concerned by a final order, decree or
judgment or a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under no
duty whatsoever to institute or defend any such proceedings or (2) to deliver
the Escrow Shares and any other property and documents held by the Escrow Agent
hereunder to a state or Federal court having competent subject matter
jurisdiction and located in the City of New York, Borough of Manhattan, in
accordance with the applicable procedure therefor.
3.9. The
Company agrees to indemnify and hold harmless the Escrow Agent and its partners,
employees, agents and representatives from any and all claims, liabilities,
costs or expenses in any way arising from or relating to the duties or
performance of the Escrow Agent hereunder or the transactions contemplated
hereby other than any such claim, liability, cost or expense to the extent the
same shall have been determined by final, unappealable judgment of a court of
competent jurisdiction to have resulted from the gross negligence, fraud or
willful misconduct of the Escrow Agent.
ARTICLE
IV
MISCELLANEOUS
4.1. Waiver No
waiver of, or any breach of any covenant or provision herein contained shall be
deemed a waiver of any preceding or succeeding breach thereof, or of any other
covenant or provision herein contained. No extension of time for performance of
any obligation or act shall be deemed an extension of the time for performance
of any other obligation or act.
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4.2. Notices. All
notices, demands, consents, requests, instructions and other communications to
be given or delivered or permitted under or by reason of the provisions of this
Agreement or in connection with the transactions contemplated hereby shall be in
writing and shall be deemed to be delivered and received by the intended
recipient as follows: (i) if personally delivered, on the business day of such
delivery (as evidenced by the receipt of the personal delivery service), (ii) if
mailed certified or registered mail return receipt requested, two (2) business
days after being mailed, (iii) if delivered by overnight courier (with all
charges having been prepaid), on the business day of such delivery (as evidenced
by the receipt of the overnight courier service of recognized standing), or (iv)
if delivered by facsimile transmission, on the business day of such delivery if
sent by 6:00 p.m. in the time zone of the recipient, or if sent after that time,
on the next succeeding business day (as evidenced by the printed confirmation of
delivery generated by the sending party’s telecopier machine). If any notice,
demand, consent, request, instruction or other communication cannot be delivered
because of a changed address of which no notice was given (in accordance with
this Section 4.3), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
second business day the notice is sent (as evidenced by a sworn affidavit of the
sender). All such notices, demands, consents, requests, instructions and other
communications will be sent to the following addresses or facsimile numbers as
applicable.
If to
Escrow
Agent: Loeb
& Loeb LLP
000 Xxxx
Xxxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxxxx X. Xxxxxxxx, Esq.
Tel No.:
000-000-0000
Fax No.:
000-000-0000
If to the
Company or the Principal Stockholder:
Rise King
Investments Limited.
c/o
ChinaNet Online Holdings, Inc,
Xx.0 Xxx
Xxxxxx Xxxx, Xxxxxxxx 0,
Xx Xxxx
Xxx Xx Tuspark, Haidian District,
Beijing,
100195, P.R.China
Attention:
Xxxxx Xxxxxxx
Tel. No.:
00-00-00000000
Fax No.:
00-00-00000000
With a
copy to (which shall not constitute notice):
Loeb
& Loeb LLP
000 Xxxx
Xxxxxx
Xxx Xxxx,
XX 00000
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Attention:
Xxxxxxxx X. Xxxxxxxx, Esq.
Tel. No.:
(000) 000-0000
Fax No.:
(000) 000-0000
If to the
Purchaser Representative:
Sansar
Capital Management
000 X.
00xx
Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxxx Xxx
Tel. No.:
000-000-0000
Fax
No.:
With a
copy to (which shall not constitute notice):
ROPES
& XXXX LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx,
XX 00000-0000
Attention: Xxxxxxx
Xxxxxxxxxx
Tel: 000-000-0000
Fax: 000-000-0000
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Attention: Xxxxxx
XxxxXxxxxxx
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Tel.
No.: 000-000-0000 _
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Fax No:
000-000-0000
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ROPES
& XXXX LLP
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Xxx
Xxxxxxxxxxxxx Xxxxx
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Xxxxxx,
XX 00000-0000
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Attention: Xxxxxxxxxxx
X. Xxxxxx
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Tel.
No. 000-000-0000
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Fax
No.: 000-000-0000
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or to
such other address and to the attention of such other person as any of the above
may have furnished to the other parties in writing and delivered in accordance
with the provisions set forth above.
4.3. Successors and
Assigns. This Escrow Agreement shall be binding upon and shall
inure to the benefit of the permitted successors and permitted assigns of the
parties hereto.
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4.4. Entire Agreement;
Amendment. This Agreement contains the entire understanding and agreement
of the parties relating to the subject matter hereof and supersedes all prior
and/or contemporaneous understandings and agreements of any kind and nature
(whether written or oral) among the parties with respect to such subject matter.
This Escrow Agreement may not be modified, changed, supplemented, amended or
terminated, nor may any obligations hereunder be waived, except by written
instrument signed by the parties to be charged or by its agent duly authorized
in writing or as otherwise expressly permitted
herein. Notwithstanding anything to the contrary in this Agreement,
none of the provisions of Article I hereof or this Section 4.4 may be modified,
changed, supplemented, amended or terminated, nor may any such provision be
waived, without the prior written consent of the Purchasers holding a majority
of the Preferred Shares as of the date of such modification, change, supplement,
amendment, termination or waiver (based on the aggregate number of Preferred
Shares held by all of the Purchasers as of the date of such modification,
change, supplement, amendment, termination or waiver).
4.5. Headings. The section
headings contained in this Agreement are inserted for reference purposes only
and shall not affect in any way the meaning, construction or interpretation of
this Agreement. Any reference to the masculine, feminine, or neuter gender shall
be a reference to such other gender as is appropriate. References to the
singular shall include the plural and vice versa.
4.6. Governing
Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to any of the conflicts of law principles which would result in the
application of the substantive law of another jurisdiction. This Agreement shall
not be interpreted or construed with any presumption against the party causing
this Agreement to be drafted.
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of this
21st
day of August 2009.
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By:
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/s/
Xxxxxxx Xxxxx
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Name:
Xxxxxxx Xxxxx
Title:
Chief Executive Officer
PURCHASER
REPRESENTATIVE:
SANSAR
CAPITAL MANAGEMENT
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By:
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/s/
Xxxxxxx Xxxxxx
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Name:
Xxxxxxx Xxxxxx
Title:
Authorized Signatory
ESCROW
AGENT:
Loeb
& Loeb LLP
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By:
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/s/
Xxxxx Xxxxxx
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Name:
Xxxxx Xxxxxx
Title: Partner
PRINCIPAL
STOCKHOLDER:
RISE
KING INVESTMENTS LIMITED
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By:
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/s/
Xxxxxxx Xxxxx
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Name: Xxxxxxx
Xxxxx
Title:
Authorized Signatory
10
