MAKE GOOD ESCROW AGREEMENT
THIS MAKE
GOOD ESCROW AGREEMENT (the “Agreement”), dated as
of _______, 2009, is entered into by and among Lihua International, Inc., a
Delaware corporation (the “Company”), Maxim
Group LLC (“Maxim”), Magnify Wealth Enterprise Limited, a company organized in
the British Virgin Islands (“Magnify Wealth”), the
original controlling stockholders of the Company as set forth on Exhibit “A”
attached hereto (the “Original
Stockholders” and together with Magnify Wealth, the “Pledgors”), and
Corporate Stock Transfer, Inc., as escrow agent (the “Escrow
Agent”).
WITNESSETH:
WHEREAS, the Company has
engaged Maxim to be its [lead] underwriter in a public offering (the “Offering”) of units
(the “Units”),
each consisting of one share of the Company’s common stock, par value $0.001 per
share (the “Common
Stock”), and one-quarter (1/4) of one warrant, and concurrent with the
execution of this Agreement is completing the Offering;
WHEREAS, as an inducement to
the purchasers of the Units in the Offering (individually, a “Purchaser”, and
collectively, the “Purchasers”), the
Pledgors have agreed to deposit an aggregate of ______shares of Common Stock
(the “Offering Escrow
Shares”) into an escrow account to be held as security for the
achievement by the Company of [EBITDA, or net income] that equals or exceeds
$___________ (the “Offering Performance
Threshold”), as reported in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2009 (the “2009 Financial
Statements”), which shall be filed with the Securities and Exchange
Commission (the “SEC”) no later than
March 31, 2010 (the “Determination Date”),
it being understood that the Determination Date shall be adjusted for an
additional 15 days, in the event the Company files a Notification of Late Filing
on Form 12b-25.
WHEREAS, the Company, the
Pledgors and Maxim have requested that the Escrow Agent hold the Offering 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. The
parties hereby agree to establish an escrow account (the “Escrow Account”) with
the Escrow Agent whereby the Escrow Agent shall hold the Offering Escrow Shares
as contemplated by this Agreement.
1.2. Upon
the execution of this Agreement:
(i) Magnify Wealth and the
Original Stockholders shall deliver stock certificates to the Escrow Agent
consisting of _____ and ______shares of Common Stock respectively, and the
Additional Escrow Shares (as defined in Section 1.4 below), along with updated
stock powers executed in blank, signature medallion guaranteed or in other form
and substance acceptable for transfer; and
(ii) Maxim shall deliver to
the Escrow Agent a list of the Purchasers in the Offering. If the
underwriter’s over-allotment option relating to the Offering (the “Over-allotment
Option”) is exercised, then Maxim shall supplement such list of
Purchasers at the closing of the Over-allotment Option by delivering to the
Escrow Agent a list of additional Purchasers who bought Units in the
Over-allotment Option.
1.3. The
parties hereby agree that the Offering Escrow Shares and the Additional Escrow
Shares shall be distributed based on and subject to the achievement of the
Offering Performance Threshold as set forth below:
(i) If the Company achieves at
least 95% of the Offering Performance Threshold, the Offering Escrow Shares
and the Additional Escrow Shares shall be released to Magnify Wealth and the
Original Stockholders in the same proportion in which they deposited such shares
into the Escrow Account. Within five (5) business days of Maxim’s
receipt of the 2009 Financial Statements, Maxim shall provide sole written
instructions to the Escrow Agent instructing the Escrow Agent to issue and
deliver the Offering Escrow Shares and the Additional Escrow Shares to the
Pledgors.
(ii) If
the Company achieves at least [50%] but less than 95% of the Offering
Performance Threshold, the Escrow Agent shall deliver to each Purchaser in the
Offering who holds shares of Common Stock, or shares of Common Stock underlying
Units as of the Determination Date Offering, Escrow Shares in accordance with
the calculation below.
2
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(a)
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A =
X/Y
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(b)
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B =
2*(A*Z)
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Where:
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A =
such Purchaser’s percentage ownership of Offering Escrow
Shares
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B =
the number of Offering Escrow Shares to be distributed to such
Purchaser
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||
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X =
the aggregate number of shares of Common Stock or shares of Common
Stock underlying Units owned by such Purchaser on the Determination Date,
provided however that such number shall not exceed the number of Units
bought by such Purchaser in the Offering
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Y =
the number of Units issued upon the consummation of this Offering
(including any Units issued in the Over-allotment
Option)
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Z =
the Offering Escrow Shares multiplied by the percentage by which the
Offering Performance Threshold was not
achieved
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Within
five (5) business days of Maxim’s receipt of the 2009 Financial Statements,
Maxim shall provide sole written instructions to the Escrow Agent instructing
the Escrow Agent to issue and deliver the Offering Escrow Shares to the
Purchasers in accordance with the calculation above. Only those Purchasers who
continue to own shares of Common Stock or shares of Common Stock underlying
Units on the Determination Date shall be entitled to receive Offering Escrow
Shares calculated based on their ownership interest in shares of Common Stock or
shares of Common Stock underlying Units on the Determination
Date. Any Offering Escrow Shares remaining after disbursement to such
Purchasers and the Additional Escrow Shares shall be returned to Magnify Wealth
and the Original Stockholders in the same respective proportion as their initial
deposit of the Offering Escrow Shares and Additional Escrow Shares.
(iii) If
the Company achieves less than [50%] of the Offering Performance Thresholds,
then the Escrow Agent shall deliver to each Purchaser of Units in the
Offering, Offering Escrow Shares in accordance with the calculation
below:
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(a)
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A =
X/Y
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(b)
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B =
(A*Z)
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Where:
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A =
such Purchaser’s percentage ownership of Offering Escrow
Shares
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B =
the number of Offering Escrow Shares to be distributed to such
Purchaser
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||
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X =
the number of Units bought by such Purchaser in this
Offering
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||
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Y =
number of Units issued upon the consummation of this Offering (including
any Units issued in the Over-allotment Option)
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||
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Z =
the Offering Escrow
Shares
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Within
five business days of the underwriter’s receipt of the 2009 Financial
Statements, Maxim shall provide sole written instructions to the Escrow Agent
instructing the Escrow Agent to: (i) issue and deliver the Offering
Escrow Shares to the Purchasers in accordance with the calculation above, and
(ii) issue and deliver to the Purchasers a specific number of the Additional
Escrow Shares required as a result of the rounding up of fractional shares as
discussed in Section 1.4. Any Additional Escrow Shares remaining
after disbursement to such Purchasers shall be returned to Magnify Wealth and
the Original Stockholders in the same respective proportion as their initial
deposit of the Additional Escrow Shares
1.4. No fractional shares shall
be delivered to the Purchasers under the calculations set forth in Section
1.3. If, upon calculation of the Offering Escrow Shares to be
delivered to the purchasers pursuant to these calculations, a purchaser would be
entitled to receive a fractional interest in a share, such number of shares
shall be rounded up or down to the nearest whole number of shares of Common
Stock to be delivered to such Purchaser. In addition to the Offering
Escrow Shares, Magnify Wealth and the Original Stockholders shall deposit
_________ and __________ shares, respectively (the “Additional Escrow
Shares”), with Corporate Stock Transfer, Inc. in accordance with Section
1.2, solely to cover any shares required to be delivered to the Purchasers in
excess of the Offering Escrow Shares as a result of the rounding up of
fractional shares under the calculations set forth in Section 1.3.
1.5. If the Company does not
achieve at least 95% of the Offering Performance Threshold, the Company shall
use reasonable best efforts to promptly cause the Offering Escrow Shares, and,
if necessary, the Additional Escrow Shares, to be delivered to the Purchasers as
discussed in Section 1.3, including causing its transfer agent to promptly, but
in no event longer than five (5) business days, transfer the certificates into
the names of the Purchaser as discussed in Section 1.3, and causing its
securities counsel to provide any written instruction required by the Escrow
Agent in a timely manner so that the issuances and delivery contemplated above
can be achieved.
1.7. The
Company will provide Maxim with the Company’s 2009 Financial Statements,
prepared in accordance with US GAAP, no later than the Determination Date to
allow Maxim the opportunity to evaluate whether the Offering Performance
Threshold was achieved.
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ARTICLE
II
REPRESENTATIONS
OF THE PLEDGORS
2.1. The
Pledgors hereby represent and warrant to the Company and the Purchaser
Representative as follows:
(i) The
Pledgors are the record and beneficial owner of the Offering Escrow Shares
placed into escrow pursuant to this Agreement and own such Offering 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 Pledgors to transfer the Offering Escrow Shares placed into escrow
pursuant to this Agreement or to enter into this Agreement other than transfer
restrictions under applicable federal and state securities laws.
(ii) The
performance of this Agreement and compliance with the provisions hereof will not
violate any provision of any law applicable to the Pledgors 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 Pledgors, or any indenture, mortgage, deed of
trust or other agreement or instrument binding upon the Pledgors or affecting
the Offering Escrow Shares or result in the creation or imposition of any lien,
charge or encumbrance upon, any of the properties or assets of the Pledgors, the
creation of which would have a material adverse effect on the business and
operations of the Pledgors. 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
Pledgors, other than those already obtained.
ARTICLE
III
MISCELLANEOUS
3.1. The
Company, at the time of the completion of the Offering, will pay Escrow Agent a
total of $_____ for all services rendered by Escrow Agent
hereunder.
3.2. 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.
3.3. 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 3.3), or the refusal to accept same, the notice, demand, consent,
request, instruction or other communication shall be deemed received on the
third 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.
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If
to Escrow Agent:
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Corporate
Stock Transfer, Inc.
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0000 Xxxxxx Xxxxx Xxxxx Xxxxx, Xxxxx
000
Xxxxxx, Xxxxxxxx
00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to the
Company or Magnify Wealth:
Lihua
International, Inc.
c/o Lihua
Holdings Limited,
Houxiang
Five Star Industry District
Danyang
City, Jiangsu Province, PRC
Attention:
Xx. Xxx Xxxxxxx
Tel. No.:
86 -511-8631-7399
Fax No.:
00-000-0000-0000
With a
copy to (which shall not constitute notice):
Loeb
& Loeb LLP
000 Xxxx
Xxxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxxxxxx X. Xxxxxxxx, Esq.
Tel. No.:
(000) 000-0000
Fax No.:
(000) 000-0000
If to
Maxim:
Maxim
Group LLC
000
Xxxxxxxxx Xxxxxx
Xxx Xxxx,
XX 00000
Attention:
Xxxxxxxx Xxxxxx
Tel: (000) 000-0000
Fax: (000) 000-0000
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If to the
Original Shareholders, at the address specified on Exhibit “A” attached
hereto.
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.
3.4. This
Escrow Agreement shall be binding upon and shall inure to the benefit of the
permitted successors and permitted assigns of the parties hereto.
3.5. This
Escrow Agreement is the final expression of, and contains the entire agreement
between, the parties with respect to the subject matter hereof and supersedes
all prior understandings with respect thereto. This Escrow Agreement may not be
modified, changed, supplemented 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.
3.6. Whenever
required by the context of this Escrow Agreement, the singular shall include the
plural and masculine shall include the feminine. This Escrow Agreement shall not
be construed as if it had been prepared by one of the parties, but rather as if
all parties had prepared the same.
3.7. The
parties hereto expressly agree that this Escrow Agreement shall be governed by,
interpreted under and construed and enforced in accordance with the laws of the
State of New York, without regard to conflicts of law principles that would
result in the application of the substantive laws of another jurisdiction. Any
action to enforce, arising out of, or relating in any way to, any provisions of
this Escrow Agreement shall only be brought in a state or Federal court sitting
in New York City, Borough of Manhattan.
3.8. The
Escrow Agent’s duties hereunder may be altered, amended, modified or revoked
only by a writing signed by the Company, the Pledgors, the Purchaser
Representative and the Escrow Agent.
3.9. 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.
3.10. 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.
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3.11. 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.
3.12. 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.
3.13. 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
Purchaser Representative. In the event of any such resignation, the Purchaser
Representative 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.
3.14. 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.
3.15. 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
Offering 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 Offering 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 Offering 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.
3.16. 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.
[Signature
Page Follows]
8
[SIGNATURE
PAGE TO MAKE GOOD ESCROW AGREEMENT]
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of this ___
day of _____, 2009.
LIHUA
INTERNATIONAL, INC.
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By:
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Name: Xxx
Xxxxxxx
Title:
Chief Executive Officer and President
PURCHASER
REPRESENTATIVE:
Maxim
Group LLC
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By:
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Name:
Title:
Authorized Signatory
ESCROW
AGENT:
Corporate
Stock Transfer, Inc.
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By:
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Name:
Title:
PLEDGORS
Magnify
Wealth Enterprise Limited
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By:
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Name:
Magnify Wealth Enterprise Limited
Authorized
Signatory: Xxx Xxxxxxx
Original
Stockholders
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By:
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Name:
9
EXHIBIT
“A”
ORIGINAL
STOCKHOLDERS
The
following are the Original Stockholders of the Company who are all employees of
Broadband Capital Management LLC, which has its business address
at:
Broadband
Capital Management, LLC
000
Xxxxx Xxxxxx
Xxx
Xxxx, XX 00000
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Xxxxxx
Xxxxxxxxx
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Xxxxxxx
Xxxx
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Xxxxxxxx
Xxxxxxx
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Penumbra
Worldwide LTD
|
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Xxxxxx
Xxxxx Xxxxxxx
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Xxxxxxx
X. Xxxxx
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Xxx
Xxxxxx
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Xxxx
Xxxxx
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Xxxxx
X. Xxxxxx
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Xxxxx
Xxxxxx
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