SECURITIES ESCROW AGREEMENT
This
Escrow Agreement (the “Agreement”),
dated
as of June 11, 2008, is entered into by and among China Advanced Construction
Materials Group, Inc., a Delaware corporation (the “Company”),
the
individual signatories hereto on Schedule A (each an “Investor”
and
collectively, the “Investors”),
Professional
Offshore Opportunity Fund, Ltd.,
as
representative of the Investors (the “Investor
Representative”),
Xxxxxx Xxx and Xxxxx
He
(collectively, the “Stockholders”)
and
American Stock Transfer & Trust Company (hereinafter referred to as the
“Escrow
Agent”).
All
capitalized terms used but not defined herein shall have the meanings assigned
them in the Subscription Agreement, between the Company and each Investor in
the
Offering.
BACKGROUND
The
Company is selling investment units (“Units”),
each
consisting of (i) one share of the Company’s Series A Convertible Preferred
Stock, par value $.001 per share, each share of which will be convertible into
four (4) shares of the Company’s Common Stock, par value $.001 per share (the
“Common
Stock”)
and
(ii) a warrant to purchase two (2) shares of Common Stock, par value $.001
per
share. As an inducement to the Investors to enter into the Subscription
Agreement, the Stockholders have agreed to place the Escrow Shares (as defined
below) into escrow for the benefit of the Investors in the event the Company
fails to satisfy the Performance Thresholds (as defined below). Pursuant to
the
terms of the Offering, as described in the Company’s
Private Placement Memorandum (“PPM”)
dated
March 17, 2008, as amended on April 11, 2008, May 21, 2008 and May 28, 2008
and
in the Consent to Modification and Amendment Agreement of the PPM dated as
of
the date hereof,
the
Company, the Stockholders and the Investor Representative have agreed to
establish an escrow account (the “Escrow
Account”
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.
AGREEMENT
NOW,
THEREFORE,
in
consideration of the mutual promises of the parties and the terms and conditions
hereof, the parties hereby agree as follows:
1. Appointment
of Investor Representative.
The
Investors hereby appoint the Investor Representative to act on their collective
behalf with respect to all matters within the scope of this agreement, and
the
Investor Representative hereby accepts such appointment. All decisions of the
Investor Representative with respect to the subject matter of this Agreement
shall be binding on the Investors absent fraud or willful
misconduct.
2. Appointment
of Escrow Agent.
The
Investor Representative on behalf of the Investors, the Stockholders and the
Company hereby appoint American Stock Transfer & Trust Company as escrow
agent to act in accordance with the terms and conditions set forth in this
Agreement, and the Escrow Agent hereby accepts such appointment and agrees
to
establish the Escrow Account on the terms and subject to the conditions
hereinafter set forth.
3. Establishment
of Escrow.
Upon
the execution of this Agreement, the Stockholders shall deliver to the Escrow
Agent stock certificates evidencing 3,500,000 shares in the aggregate of the
Company’s Common Stock, which shares shall be transferred into the name of the
Escrow Agent (collectively, the “Escrow
Shares”)
along
with stock powers executed in blank. Notwithstanding the foregoing transfer,
the
Stockholders shall have the right to vote the Escrow Shares until such time
as
they are eligible for transfer to the Investors pursuant to the terms of this
Agreement. The Company shall take all steps to assure that the Escrow Shares
are
transferred on the books and records of the Company into the name of the Escrow
Agent.
4. Representations
of the Stockholders.
The
Stockholders hereby represent and warrant to the Investors and the Investor
Representative as follows:
4.1 The
Escrow Shares are validly issued, fully paid and nonassessable shares of the
Company. The Stockholders are the record and beneficial owners of the Escrow
Shares and have good title to the Escrow Shares, free and clear of all pledges,
liens, claims and encumbrances, except encumbrances created by this Agreement
and the Lock-Up Agreements entered into with the Stockholders, and the Escrow
Agent shall hereafter have good record title to such shares. There are no
restrictions on the ability of the Stockholders to transfer the Escrow Shares
to
the Escrow Agent or for the Escrow Agent to transfer the Escrow Shares to the
Investors, except as stated herein. There are no restrictions on the ability
of
the Stockholders enter into this Agreement other than transfer restrictions
under applicable federal and state securities laws. Upon any delivery of Escrow
Shares to the Investors hereunder, the Investors will acquire good and valid
title to the Escrow Shares, free and clear of any pledges, liens, claims and
encumbrances.
4.2 The
performance of this Agreement and compliance with the provisions hereof will
not
violate any provision of any applicable law and will not conflict with or result
in any breach of any of the terms, conditions or provisions of, or constitute
a
default under, or result in the creation or imposition of any lien, charge
or
encumbrance upon, any of the properties or assets of the Stockholders pursuant
to the terms of the certificate of incorporation or by-laws of the Company
or
any indenture, mortgage, deed of trust or other agreement or instrument binding
upon the Stockholders or affecting the Escrow Shares. 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 Stockholders.
5. Disbursement
of Escrow Shares.
5.1 For
purposes of this Agreement, “Net Income” means net income as defined under
United States generally accepted accounting principles (“GAAP”),
consistently applied, for the Company, except that there shall be assumed each
year that there are dividends payable on each share of outstanding Series A
Preferred Stock at the annual rate of nine
percent (9%)
(which
amount of dividends, to the extent paid by the Company,
shall be
added back (if and to the extent previously subtracted in the calculation of
Net
Income in accordance with GAAP) to Net Income prior to determining if the
Performance Thresholds (defined below) have been satisfied) and that,
other
than in the fiscal year (“FY08”)
ending
June 30, 2008 for which Net Income shall be calculated on a pre-tax
basis,
the
Company’s income is subject to tax at an assumed twenty-five
percent (25%)
rate,
and provided, however, that the Company’s Net Income shall be increased by any
non-cash charges incurred as a result of the Offering (due to non-cash
amortization on warrants and loss from change in fair value of the Warrants
charged to the Company’s results of operation, if any, and if and to the extent
previously subtracted in the calculation of Net Income in accordance with GAAP).
The Company’s Net Income for FY08 and fiscal year (“FY09”)
ending
June 30, 2009 shall also be increased by any cash and non-cash charges related
to the share exchange agreement dated April
29,
2008, by and among the Company, Xin Ao Construction Materials, Inc., a company
incorporated under the laws of the British Virgin Islands (“BVI-ACM”),
and
each of the shareholders of BVI-ACM, and this Offering, including but not
limited to the following: attorney’s fees, professional fees, consulting fees,
xxxxx filing fees, auditing fees and any liquidated damages pursuant to Section
7.1 of the Subscription Agreements.
-2-
5.2 The
Company has established the following financial performance thresholds
(collectively, the “Performance
Thresholds”):
(i)
$5,200,000 of Net Income (calculated
on a pre-tax basis solely with respect to FY08) for
FY08
(the
“FY08
Threshold”),
(ii)
$9,000,000 of Net Income for FY09 (the “FY09
Threshold”)
and
(iii) Net Income equal to or
greater
than the Company’s Net Income for the fiscal year ending June 30, 2009, for the
fiscal year (“FY10”)
ending
June 30, 2010 (the “FY10
Threshold”).
The
Company will provide the Investor Representative with its audited financial
statements for FY08, FY09 and FY10, prepared in accordance with US GAAP,
consistently applied with its financial statements for the fiscal year ending
June 30, 2007, on or before September 30, 2008, September 30, 2009 and September
30, 2010, respectively (the “Due
Date”),
along
with a certification from the Company’s Chief Financial Officer calculating Net
Income for such year as provided above, and a letter from the Company’s auditors
confirming the accuracy of the CFO’s calculation, so as to allow the Investor
Representative the opportunity to evaluate whether the Performance Threshold
has
been attained each year.
5.3 If
the
Company’s Net Income (as calculated pursuant to Section
5.1
above)
for any one of FY08, FY09 or FY10 is less than 100% of the applicable
Performance Threshold, respectively, then the Performance Threshold will be
deemed not to have been achieved and all of the Escrow Shares shall be forfeited
by the Shareholders and delivered by the Escrow Agent to the Investors (pro
rata
based on the number of Units purchased by each Investor in the Offering as
shown
on Exhibit A). The Investor Representative shall provide written instructions
to
the Escrow Agent, with copies to the Company and the Stockholders, instructing
the Escrow Agent to deliver to the Investors, at the addresses set forth on
Exhibit A, within ten (10) business days following delivery of the Investor
Representative’s notice pursuant to this Section
5.3,
certificates registered in the name of each Investor, subject to Section
5.6
below
and provided that the Escrow Agent has received such certificates from the
Company’s transfer agent, evidencing the Investor’s pro rata portion of the
Escrow Shares, and the Escrow Agent shall make such delivery to the Investors
if
no objection is received from the Stockholders.
5.4 If
the
Escrow Shares remain in the Escrow Account after the Investor Representative
has
had the opportunity to evaluate whether or not the Company has attained the
FY10
Performance Threshold, then all of the Escrow Shares remaining in the Escrow
Account shall be delivered to the Stockholders, in proportion to the amount
contributed by each, and the Investor Representative shall provide written
instructions to the Escrow Agent instructing the Escrow Agent to deliver the
Escrow Shares to the Stockholders within ten (10) business days following
delivery of the financial statements for FY10 to the Investor
Representative.
-3-
5.5 In
the
event that any Escrow Shares are to be delivered to the Investors pursuant
to
this Section
5,
the
Company shall use best efforts to promptly cause the Escrow Shares to be
delivered to the Investors, including causing its transfer agent promptly to
issue the certificates in the names of the Investors and causing its securities
counsel to provide any written instruction required by its transfer agent or
the
Escrow Agent in a timely manner so that the issuances and delivery contemplated
above can be achieved within ten (10) business days following delivery of the
applicable financial statements to the Investor Representative and so that
the
Escrow Shares can be delivered without restrictive legend so long as six (6)
months have passed since the date of this Agreement.
5.6 Notwithstanding
anything to the contrary herein, those Investors that became holders of
Preferred Stock pursuant to the Offering shall be entitled to their pro rata
portion of the Escrow Shares at the time of any distribution of Escrow Shares,
regardless of whether they have subsequently transferred their Preferred Stock;
provided, however, if an Investor has entered into a written agreement
evidencing such Investor’s transfer and assignment of all its rights and
obligations under this Agreement, and has provided written notice to the Company
and the Escrow Agent of such transfer in accordance with Section
14
below (a
“Notice
of Transfer”),
then
in the event that any Escrow Shares are to be delivered to the Investors in
accordance with this Section
5,
the
Company shall direct its transfer agent to issue the certificates in the names
of the transferee(s) and the Escrow Shares shall be delivered by the Escrow
Agent to the transferee(s) as set forth in the Investor’s Notice of Transfer.
6. Investment
Intent; Limited Transferability of Escrow Shares.
6.1 By
accepting the Escrow Shares, each Investor represents to the Company that it
understands that the Escrow Shares have not been registered for sale under
Federal or state securities laws and are being delivered to the Investor
pursuant to one or more exemptions from the registration requirements of such
securities laws. Each Investor understands that it must bear the economic risk
of its investment the Escrow Shares and hold such securities for an indefinite
period of time, as such securities have not been registered under Federal or
state securities laws and therefore cannot be sold unless subsequently
registered under such laws, unless an exemption from such registration is
available. Each Investor further represents to the Company, by accepting the
Escrow Shares, that it has full power and authority to accept the Escrow Shares
and make the representations set forth herein.
6.2 Each
Investor, by its acceptance of the Escrow Shares, represents to the Company
that
it is acquiring the Escrow Shares for its own account for investment and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act of 1933, as amended (the “Act”).
Each
Investor agrees, by acceptance of the Escrow Shares, that such shares will
not
be sold or otherwise transferred unless (i) a registration statement with
respect to such transfer is effective under the Act and any applicable state
securities laws or (ii) such sale or transfer is made pursuant to one or more
exemptions from the Act.
-4-
6.3 Each
Investor, by its acceptance of the Escrow Shares, acknowledges that the Escrow
Shares may not be sold, transferred, assigned or hypothecated by the Investor
except in compliance with the provisions of the Act and the applicable state
securities “blue sky” laws, and is so transferable only upon the books of the
Company which it shall cause to be maintained for such purpose.
7. Duration.
This
Agreement shall terminate on the distribution of all the Escrow Shares in
accordance with Section
5
above.
8. Interpleader.
Should
any controversy arise among the parties hereto with respect to this Agreement
or
with respect to the right to receive the Escrow Shares, the Escrow Agent shall
have the right to consult counsel and/or to institute an appropriate
interpleader action to determine the rights of the parties. The Escrow Agent
is
also hereby authorized to institute an appropriate interpleader action upon
receipt of a written letter of direction executed by the parties so directing
Escrow Agent. If the Escrow Agent is directed to institute an appropriate
interpleader action, it shall institute such action not prior to thirty (30)
days after receipt of such letter of direction and not later than sixty (60)
days after such date. Any interpleader action instituted in accordance with
this
Section
8
shall be
filed in any court of competent jurisdiction in New York, New York, and the
Escrow Shares in dispute shall be deposited with the court and in such event
Escrow Agent shall be relieved of and discharged from any and all obligations
and liabilities under and pursuant to this Agreement with respect to the Escrow
Shares.
9. Exculpation
and Indemnification of Escrow Agent.
9.1 The
Escrow Agent is not a party to, and is not bound by or charged with notice
of
any agreement out of which this escrow may arise. The Escrow Agent acts under
this Agreement as a depositary only and is not responsible or liable in any
manner whatsoever for the sufficiency, correctness, genuineness or validity
of
the subject matter of the escrow, or any part thereof, or for the form or
execution of any notice given by any other party hereunder, or for the identity
or authority of any person executing any such notice. The Escrow Agent will
have
no duties or responsibilities other than those expressly set forth herein.
The
Escrow Agent will be under no liability to anyone by reason of any failure
on
the part of any party hereto (other than the Escrow Agent) or any maker,
endorser or other signatory of any document to perform such person’s or entity’s
obligations hereunder or under any such document. Except for this Agreement
and
instructions to the Escrow Agent pursuant to the terms of this Agreement, the
Escrow Agent will not be obligated to recognize any agreement between or among
any or all of the persons or entities referred to herein, notwithstanding its
knowledge thereof.
9.2 The
Escrow Agent will not be liable for any action taken or omitted by it, or any
action suffered by it to be taken or omitted, in good faith and in the exercise
of its own best judgment, and may rely conclusively on, and will be protected
in
acting upon, any order, notice, demand, certificate, or 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 reasonably believed
by Escrow Agent to be genuine and to be signed or presented by the proper person
or persons. The duties and responsibilities of the Escrow Agent hereunder shall
be determined solely by the express provisions of this Agreement and no other
or
further duties or responsibilities shall be implied, including, but not limited
to, any obligation under or imposed by any laws of the State of New York upon
fiduciaries.
-5-
9.3 The
Escrow Agent will be indemnified and held harmless, jointly and severally,
by
the Company and the Stockholders from and against any expenses, including
reasonable attorneys’ fees and disbursements, damages or losses suffered by the
Escrow Agent in connection with any claim or demand, which, in any way, directly
or indirectly, arises out of or relates to this Agreement or the services of
Escrow Agent hereunder; except, that if the Escrow Agent is guilty of willful
misconduct, fraud or gross negligence under this Agreement, then the Escrow
Agent will bear all losses, damages and expenses arising as a result of such
willful misconduct, fraud or gross negligence. Promptly after the receipt by
the
Escrow Agent of notice of any such demand or claim or the commencement of any
action, suit or proceeding relating to such demand or claim, the Escrow Agent
will notify the other parties hereto in writing. For the purposes hereof, the
terms “expense” and “loss” will include all amounts paid or payable to satisfy
any such claim or demand, or in settlement of any such claim, demand, action,
suit or proceeding settled with the express written consent of the parties
hereto, and all costs and expenses, including, but not limited to, reasonable
attorneys’ fees and disbursements, paid or incurred in investigating or
defending against any such claim, demand, action, suit or proceeding. The
provisions of this Section
9
shall
survive the termination of this Agreement.
10. Fees
and Expenses.
The
Company will pay the Escrow Agent $_________ for all services rendered by the
Escrow Agent hereunder. In addition, the Company agrees to reimburse the Escrow
Agent for any reasonable expenses incurred in connection with this Agreement,
including, but not limited to, reasonable counsel fees of one counsel.
11. Resignation
of Escrow Agent.
At any
time, upon ten (10) days’ written notice to the Company, the Escrow Agent may
resign and be discharged from its duties as escrow agent hereunder. As soon
as
practicable after its resignation, the Escrow Agent will promptly turn over
to a
successor escrow agent appointed by the Company the Escrow Shares held hereunder
upon presentation of a document appointing the new escrow agent and evidencing
its acceptance thereof. If, by the end of the 10-day period following the giving
of notice of resignation by the Escrow Agent, the Company shall have failed
to
appoint a successor escrow agent, the Escrow Agent may interplead the Escrow
Shares into the registry of any court having jurisdiction.
12. Records.
The
Escrow Agent shall maintain accurate records of all transactions hereunder.
Promptly after the termination of this Agreement or as may reasonably be
requested by the parties hereto from time to time before such termination,
the
Escrow Agent shall provide the parties hereto, as the case may be, with a
complete copy of such records, certified by the Escrow Agent to be a complete
and accurate account of all such transactions. The authorized representatives
of
each of the parties hereto shall have access to such books and records at all
reasonable times during normal business hours upon reasonable notice to the
Escrow Agent.
13. Registration
Rights.
If any
Escrow Shares are distributed to the Investors hereunder, but counsel for the
Company is unable to opine that the Escrow Shares may be delivered to the
Investors free of restrictive legend, then the Investors shall have the right
to
participate in the registration rights granted to
them
in connection with their purchase of the Units pursuant to Article VII of the
Subscription Agreement. By executing this Agreement, the Company agrees to
comply with the provisions in Article VII of the Subscription Agreement. The
Company shall also engage Counsel to timely provide the opinion required under
this Section.
-6-
14. Notice.
All
notices, communications and instructions required or desired to be given under
this Agreement must be in writing and shall be deemed to be duly given if sent
by registered or certified mail, return receipt requested, or overnight courier
to the following addresses:
If
to
Escrow Agent:
American
Stock Transfer & Trust Company
00
Xxxxxx
Xxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxx
If
to the
Company or the Stockholders:
Xxxxx
Xxxxx, 0
Xxxxxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxx
Xxxxxxxx, Xxxxxxx 100080
Attention:
Xxxxxx
Xxx, Chief Executive Officer
With
a
copy to:
Xxxxxx
+
Jaclin, LLP
000
Xxxxx
0 Xxxxx, Xxxxx 000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxx, Esq.
If
to the
Investor Representative:
Professional
Offshore Opportunity Fund, Ltd.
0000
Xxx
Xxxxxxx Xxxx
Xxxxx
000
Xxxxxxxx,
XX 00000
Attention:
Xxxxxx X. Xxxxxx, Manager
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.
15. Execution
in Counterparts.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Facsimile execution and delivery of this Agreement is legal, valid
and binding for all purposes.
-7-
16. Assignment
and Modification.
This
Agreement and the rights and obligations hereunder of any of the parties hereto
may not be assigned without the prior written consent of the other parties
hereto. Subject to the foregoing, this Agreement will be binding upon and inure
to the benefit of each of the parties hereto and their respective successors
and
permitted assigns. No other person will acquire or have any rights under, or
by
virtue of, this Agreement. No portion of the Escrow Shares shall be subject
to
interference or control by any creditor of any party hereto, or be subject
to
being taken or reached by any legal or equitable process in satisfaction of
any
debt or other liability of any such party hereto prior to the disbursement
thereof to such party hereto in accordance with the provisions of this
Agreement. This Agreement may be changed or modified only in writing signed
by
all of the parties hereto.
17. Applicable
Law.
This
Agreement shall be governed by and construed with the laws of the State of
New
York applicable to contracts made and to be performed therein. Any litigation
concerning the subject matter of this Agreement shall be exclusively prosecuted
in the state or federal courts located in New York, New York, and all parties
consent to the excusive jurisdiction and venue of those courts.
18. Headings.
The
headings contained in this Agreement are for convenience of reference only
and
shall not affect the construction of this Agreement.
19. Attorneys’
Fees.
If any
action at law or in equity, including an action for declaratory relief, is
brought to enforce or interpret the provisions of this Agreement, the prevailing
party shall be entitled to recover reasonable attorneys’ fees from the other
party (unless such other party is the Escrow Agent), which fees may be set
by
the court in the trial of such action or may be enforced in a separate action
brought for that purpose, and which fees shall be in addition to any other
relief that may be awarded.
[Signature
Page Follows]
-8-
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and
year first above written.
|
AMERICAN
STOCK TRANSFER & TRUST COMPANY
|
||
|
By:
|
/s/
Xxxxxxx X. Xxxxxx
|
|
|
Name:
Xxxxxxx X. Xxxxxx
|
||
|
Title:
Vice President
|
||
|
By:
|
/s/
Xxxxxx Xxx
|
|
|
Name:
Xxxxxx Xxx
|
||
|
Title:
Chief Executive Officer
|
||
|
PROFESSIONAL
OFFSHORE OPPORTUNITY FUND, LTD.
|
||
|
By:
|
/s/
Xxxxxx Xxxxxx
|
|
|
Name:
Xxxxxx Xxxxxx
|
||
|
Title:
Manager
|
||
|
STOCKHOLDERS:
|
||
| /s/ Xxxxxx Xxx | ||
| Xxxxxx Xxx, in his individual capacity | ||
| /s/ Weili He | ||
| Weili He, in his individual capacity | ||
Exhibit
A
Investor
Signature Page
The
undersigned hereby (i)
agrees
to the
annexed Securities Escrow Agreement, (ii)
consents
to the
appointment of the Investor Representative, and (iii)
states
that
next to the
undersigned’s
name
below is the number of Units purchased by the
undersigned
in
_______ 2008 and the dollar amount invested by the
undersigned.
|
Name:
___________________________________
|
|
Entity
Name: ______________________________
|
|
Number
of Units Purchased: __________________
|
|
Tax
Id. No.:
_______________________________
|
