ESCROW AGREEMENT
This
ESCROW AGREEMENT (this “Agreement”)
made
as of June
11,
2008 by and between China Advanced Construction Materials Group, Inc. (the
“Issuer”),
Professional
Offshore Opportunity Fund, Ltd.,
as
representative of the Investors (the “Investor
Representative”),
and
Maxim Group LLC (the “Placement
Agent”),
000
Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, and Xxxxxx + Xxxxxx, LLP, 000 Xxxxx
0 Xxxxx, Xxxxx 000, Xxxxxxxxx, XX 00000 (the “Escrow
Agent”).
WITNESETH:
WHEREAS,
the Issuer proposes to sell units (“Units”),
each
consisting of (i) one share of Issuer’s Series A Convertible Preferred
Stock (the “Preferred
Stock”),
par
value $.001 per share, each share of which shall be convertible into four (4)
shares of the Issuer’s Common Stock, par value $0.001 per share (the
“Common
Stock”)
and
(ii) a warrant to purchase two (2) shares of Common Stock, par value $0.001
per share;
WHEREAS,
the Issuer is offering to “accredited investors,” on a “best efforts” basis, up
to 875,000 Units at a purchase price per Unit of $8.00 (the “Offering”);
WHEREAS,
each
holder of the Preferred Stock will receive a 9% per annum cash dividend
(“Dividends”), payable to the record holders of the Preferred Stock on a
quarterly basis;
WHEREAS,
the Issuer
proposes to establish an escrow account (the “Escrow
Account”),
which
shall include $630,000
which will be used for the payment of Dividends (the “Dividend
Escrow Amount”),
which
the Issuer shall be obligated to replenish each year prior to the year’s
end,
and
$300,000 to be used for investor relations fees (the “IR
Escrow Amount”);
and
the Escrow Agent is willing to establish the Escrow Account on the terms and
subject to the conditions hereinafter set forth;
NOW,
THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. Appointment
of Escrow Agent.
The
Issuer and Placement Agent hereby appoint Xxxxxx + Jaclin, LLP 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
Bank Account on the terms and subject to the conditions hereinafter set
forth.
2. Establishment
of the Bank Account.
The
Escrow Agent shall establish a non-interest-bearing bank account at the branch
of the Bank selected by the Escrow Agent (heretofore
defined as the
“Bank
Account”).
The
purpose of the Bank Account is for (a) the deposit of the Dividend Escrow Amount
and IR Escrow Amount by the Issuer, and (b) the disbursement of collected funds,
all as described herein.
3. Delivery
of the Escrow Funds.
The
Issuer shall deliver, or cause to be delivered from the proceeds of the
Offering, the Dividend Escrow Amount and the IR Escrow Amount (the “Escrow
Funds”)
to the
Escrow Agent in immediately available funds to be held and disbursed by the
Escrow Agent as provided in this Agreement. The Escrow Agent shall promptly
notify the Investor of its receipt of the Escrow Funds. Prior to the last day
of
each calendar year until the voluntary or mandatory conversion of all
outstanding shares of Preferred Stock, the Issuer shall deliver an additional
amount of immediately available funds equal to the product of the Dividend
and
the Dividend Base Amount (as defined in the Certificate of Designation of Series
A Preferred Convertible Stock (the “Certificate
of Designation”))
less
any amounts remaining of the Dividend Escrow Amount (“Additional
Dividend Escrow Amount”),
to
the Escrow Agent.
4. Disbursements
from the Bank Account. The
Escrow Agent shall hold the Escrow Funds in accordance with the terms of this
Agreement.
4.1 The
Escrow Agent shall release funds out of the Dividend Escrow Amount for the
payment of Dividends on a quarterly basis in accordance with the provisions
of
Section 2 of the Certificate of Designation.
4.2 The
Escrow Agent shall release the IR Escrow Amount in incremental amounts pursuant
to written instructions by the Investor Representative to an investor relations
firm chosen by the Issuer and approved by the holders of at least sixty percent
(60%) of the then outstanding shares of the Series A Preferred Stock. If the
entire IR Escrow Amount is not disbursed within two (2) years from the date
hereof, the balance of the IR Escrow Amount will be returned to the
Issuer.
5. Duration.
This
Agreement shall terminate upon the voluntary or mandatory conversion of all
outstanding shares of Preferred Stock and upon the disbursement of the entire
IR
Escrow Amount in accordance with Section 4.2.
6. Conflict.
Each of
the parties understands and acknowledges that the Escrow Agent is general
outside counsel to the Issuer and owes the Issuer duties commensurate with
such
legal representation.
7. Interpleader.
Should
any controversy arise among the parties hereto with respect to this Agreement
or
with respect to the right to receive the Escrow Funds, 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
7
shall be
filed in any court of competent jurisdiction in New York, New York, and the
Escrow Funds 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
Funds.
8. Exculpation
and Indemnification of Escrow Agent.
8.1 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.
8.2 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.
8.3 The
Escrow Agent will be indemnified and held harmless, jointly and severally,
by
the Issuer and the Placement Agent 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
8
shall
survive the termination of this Agreement.
9. Fees
and Expenses.
The
Escrow Agent shall not be compensated for agreeing to perform the services
set
forth in this Agreement. The Issuer, however, agrees to pay the Escrow Agent’s
costs and expenses including reasonable attorney’s fees in the event of any
dispute or litigation threatened or commenced which requires the Escrow Agent
in
its opinion to refer such matter to its attorneys. Escrow Agent will incur
no
liability for any delay reasonably required to obtain such advice of counsel.
10. Resignation
of Escrow Agent.
At any
time, upon ten (10) days’ written notice to the Issuer, 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 Issuer the Escrow Funds 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 Issuer shall have failed
to
appoint a successor escrow agent, the Escrow Agent may interplead the Escrow
Funds into the registry of any court having jurisdiction.
11. 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.
12. 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:
Xxxxxx
+
Xxxxxx, LLP
000
Xxxxx
0 Xxxxx, Xxxxx 000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxx, Esq.
If
to the
Issuer:
Xxxxx
Xxxxx, 0 Xxxxxxxxxxx Xxxx, Xxxxx 0000
Xxxxxxx
Xxxxxxxx, Xxxxxxx 100080
Attention:
Xxxxxx Xxx, Chief Executive Officer
If
to the
Placement Agent:
Maxim
Group, LLC
000
Xxxxxxxxx Xxxxxx
Xxx
Xxxx,
XX 00000
Attn:
Xxxxx Xxxxxx
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.
13. 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.
14. 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 Funds 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.
15. 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 exclusive jurisdiction and venue of those courts.
16. Headings.
The
headings contained in this Agreement are for convenience of reference only
and
shall not affect the construction of this Agreement.
17. 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.
[Signatures
to Follow on Next Page]
IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the day
and
year first above written.
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By:
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/s/
Xxxxxxxx X. Xxxxxxx, Esq.
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Name:
Xxxxxxxx X. Xxxxxxx, Esq.
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Title:
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By:
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/s/
Xxxxxx Xxx
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Name:
Xxxxxx Xxx
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Title:
Chief Executive Officer
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| MAXIM GROUP LLC | ||
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By:
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/s/
Xxxxxxxx X. Xxxxxx
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Name:
Xxxxxxxx X. Xxxxxx
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Title:
Director of Investment Banking
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PROFESSIONAL
OFFSHORE OPPORTUNITY FUND, LTD.
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By:
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/s/
Xxxxxx Xxxxxx
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Name:
Xxxxxx Xxxxxx
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