CLOSING ESCROW AGREEMENT
This
Closing Escrow Agreement dated as of April 30, 2009 (this “Agreement”) is
entered into by and among China New Energy Group Company, a Delaware corporation
(the “Company”), China Hand
Fund I, LLC, a Delaware limited liability company (together with its successors
and assigns, “CHF” or the “Initial Purchaser”),
each of the persons who hereafter become investors in the Company pursuant to
the Purchase Agreement (as defined below) (together with its successors and
assigns, each, an “Additional Purchaser”
and collectively, the “Additional
Purchasers” and together with the Initial Purchasers, the (“Purchasers”), and
Escrow, LLC, with an address at 000 Xxxx Xxxxxx, X.X. Xxx 000, Xxxxxxxxxx,
Xxxxxxxx 00000 (the “Escrow Agent”).
Capitalized terms used but not defined herein shall have the meanings set forth
in the Purchase Agreement.
WITNESSETH:
WHEREAS,
the Initial Purchaser may purchase from the Company shares of the Company’s
Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred”),
convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common
Stock”), and certain common stock purchase warrants (the “Warrants” and
together with the Series B Preferred, the “Securities”) pursuant
to a Series B Convertible Preferred Stock Purchase Agreement to be entered into
on the closing date of such agreement (the “Closing Date”) by and
among the Company and the Initial Purchaser (the “Purchase Agreement”).
WHEREAS,
the Company desires to deposit all monies received from the Purchasers pending
the closings under the Purchase Agreement (the “Escrowed Funds”) with
the Escrow Agent, to be held in escrow until joint written instructions are
received by the Escrow Agent from the Company and the Initial Purchaser, from
time to time, at which time the Escrow Agent will disburse the Escrowed Funds in
accordance with the instructions; and
WHEREAS,
Escrow Agent is willing to hold the Escrowed Funds in escrow subject to the
terms and conditions of this Agreement.
NOW,
THEREFORE, in consideration of the mutual promises herein contained and
intending to be legally bound, the parties hereby agree as follows:
1.
Appointment of Escrow
Agent. The Company hereby appoints the Escrow Agent as escrow agent in
accordance with the terms and conditions set forth herein and the Escrow Agent
hereby accepts such appointment.
2.
Delivery of the
Escrowed Funds.
2.1 The
Company will direct Purchasers to deliver the Escrowed Funds to the Escrow
Agent, addressed to the following account of the Escrow Agent:
Domestic:
Virginia
Commerce Bank
Leesburg,
VA
ABA#000000000
Account
Name: Escrow, LLC
Account
#: 00000000
International:
Correspondent
Bank: Xxxxx Fargo Bank, San Francisco, CA
SWIFT#:
XXXXXX0X
Credit
Account #: 000-00-00000
Virginia
Commerce Bank
FBO
Account Name: Escrow, LLC
Account:
00000000
2.2 (a)
All Purchasers’ checks shall be made payable to “ESCROW, LLC and shall be
delivered to the Escrow Agent at the address set forth on Exhibit A hereto and
shall be accompanied by a written account of the subscription in the form
attached hereto as Exhibit B (the “Subscription
Information”). The Escrow Agent shall, upon receipt of Escrowed Funds
deposit such funds in escrow and such funds shall constitute the Escrowed
Funds.
2.3
Any checks which are received by the Escrow Agent that are made payable
to a person other than the Escrow Agent shall be returned directly to the sender
together with any documents delivered therewith. Simultaneously
with each deposit, the Company shall provide the Escrow Agent with the
Subscription Information to include the name, address and taxpayer
identification number of each Purchaser. The Escrow Agent is not
obligated, and may refuse, to accept checks that are not accompanied by
Subscription Information.
2.4
In the event a wire transfer is received by the Escrow Agent and the
Escrow Agent has not received Subscription Information, the Escrow Agent shall
notify the Company. If the Escrow Agent does not receive the Subscription
Information relating to a Purchaser prior to the close of business on the third
business day (days other than a Saturday or Sunday or other day on which the
Escrow Agent is not open for business in the State of Virginia) after notifying
Company of receipt of said wire, the Escrow Agent shall return the funds to the
Purchaser.
3.
Escrow Agent to Hold
and Disburse Escrowed Funds. The Escrow Agent will hold and disburse the
Escrowed Funds received by it pursuant to the terms of this Escrow Agreement, as
follows:
3.1
Upon receipt of joint instructions from the Company and the Initial Purchaser in
substantially the form of Exhibit C hereto
which instructions shall be signed by Xxxxx Xx on behalf of the Company (or such
other person as he shall designate in writing via email) the Escrow
Agent shall release the Escrowed Funds as directed in such
instructions. The Company and the Initial Purchaser agree that if the
Purchase Agreement is consummated, then on the Closing Date they will deliver
joint written instructions to release to the Company the aggregate amount of the
subscriptions deposited by the Purchasers less (x) payments to be made for
investor legal and due diligence expenses, not exceeding $100,000, and (y)
placement agent fees equal to $540,000 (representing 10% of the aggregate amount
of subscriptions).
3.2 In the event this
Agreement, the Escrowed Funds or the Escrow Agent becomes the subject of
litigation, or if the Escrow Agent shall desire to do so for any other reason,
the Company authorizes the Escrow Agent, at its option, to deposit the Escrowed
Funds with the clerk of the court in which the litigation is pending, or a court
of competent jurisdiction if no litigation is pending, and thereupon the Escrow
Agent shall be fully relieved and discharged of any further responsibility with
regard thereto. The Company also hereby authorizes the Escrow Agent, if it
receives conflicting claims to the Escrowed Funds, is threatened with litigation
or if the Escrow Agent shall desire to do so for any other reason, to interplead
all interested parties in any court of competent jurisdiction and to deposit the
Escrowed Funds with the clerk of that court and thereupon the Escrow Agent shall
be fully relieved and discharged of any further responsibility hereunder to the
parties from which they were received.
3.3 In
the event that the Escrow Agent does not receive any instructions by a date that
is 90 days from the date of this Agreement (the “Escrow Termination
Date”), all Escrowed Funds shall be returned to the parties from which
they were received, without interest thereon or deduction therefrom. If the
Escrow Agent does receive joint written instructions by the Escrow Termination
Date, then the Escrow Agent shall continue to hold all undisbursed Escrowed
Funds until the Escrow Agent receives joint written instructions from the
Initial Purchaser and the Company covering all remaining Escrowed
Funds.
4.
Exculpation and
Indemnification of Escrow Agent
4.1
The Escrow Agent
shall haven no duties or responsibilities other than those expressly set forth
herein. The Escrow Agent shall have no duty to enforce any obligation
of any person to make any payment or delivery, or to direct or cause any payment
or delivery to be made, or to enforce any obligation of any person to perform
any other act. The Escrow Agent shall be under no liability to the
other parties hereto or anyone else, by reason of any failure, on the part of
any party hereto or any maker, guarantor, endorser or other signatory of a
document or any other person, to perform such person’s obligations under any
such document. Except for amendments to this Escrow Agreement referenced below,
and except for joint written instructions given to the Escrow Agent by the
escrowing parties relating to the Escrowed Funds, the Escrow Agent shall not be
obligated to recognize any agreement between or among any of the escrowing
parties, notwithstanding that references hereto may be made herein and whether
or not it has knowledge thereof.
4.2
The Escrow Agent shall not be liable to the Company or to anyone else for
any action taken or omitted by it, or any action suffered by it to be taken or
omitted, in good faith and acting upon any order, notice, demand, certificate,
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
believed by the Escrow Agent to be genuine and to be signed or presented by the
proper person or persons. The Escrow Agent shall not be bound by any of the
terms thereof, unless evidenced by written notice delivered to the Escrow Agent
signed by the proper party or parties and, if the duties or rights of the Escrow
Agent are affected, unless it shall give its prior written consent
thereto.
4.3
The Escrow Agent shall not be responsible for the sufficiency or accuracy of the
form, or of the execution, validity, value or genuineness of, any document or
property received, held or delivered to it hereunder, or of any signature or
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable to the
Company, the Initial Purchaser, the Additional Purchasers or to anyone else in
any respect on account of the identity, authority or rights, of the person
executing or delivering or purporting to execute or deliver any document or
property or this Escrow Agreement. The Escrow Agent shall have no responsibility
with respect to the use or application of the Escrowed Funds pursuant to the
provisions hereof.
4.4
The Escrow Agent shall have the right to assume, in the absence of written
notice to the contrary from the proper person or persons, that a fact or an
event, by reason of which an action would or might be taken by the Escrow Agent,
does not exist or has not occurred, without incurring liability to the Company,
the Initial Purchaser, the Additional Purchasers or to anyone else for any
action taken or omitted to be taken or omitted, in good faith and in the
exercise of its own best judgment, in reliance upon such
assumption.
4.5
To the extent that the Escrow Agent becomes liable for the payment of taxes,
including withholding taxes, in respect of income derived from the investment of
the Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such
taxes; and the Escrow Agent may withhold from any payment of the Escrowed Funds
such amount as the Escrow Agent estimates to be sufficient to provide for the
payment of such taxes not yet paid, and may use the sum withheld for that
purpose. The Escrow Agent shall be indemnified and held harmless against any
liability for taxes and for any penalties in respect of taxes, on such
investment income or payments in the manner provided in Section
4.6.
4.6
The Escrow Agent will be indemnified and held harmless by the Company from and
against all expenses, including all counsel fees and disbursements, or loss
suffered by the Escrow Agent in connection with any action, suit or proceedings
involving any claim, or in connection with any claim or demand, which in any
way, directly or indirectly, arises out of or relates to this Escrow Agreement,
the services of the Escrow Agent hereunder, except for claims relating to gross
negligence by Escrow Agent or breach of this Escrow Agreement by the Escrow
Agent, or the monies or other property held by it hereunder. Promptly after the
receipt of the Escrow Agent of notice of any demand or claim or the commencement
of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect
thereof is to be made against a party to this Agreement, notify each of them
thereof in writing, but the failure by the Escrow Agent to give such notice
shall not relieve any such party from any liability which a party may have to
the Escrow Agent hereunder. Notwithstanding any obligation to make payments and
deliveries hereunder, the Escrow Agent may retain and hold for such time as it
deems necessary such amount of monies or property as it shall, from time to
time, in its sole discretion, seem sufficient to indemnify itself for any such
loss or expense and for any amounts due it under Section 7.
4.7
For purposes hereof, the term “expense or loss” shall include all amounts paid
or payable to satisfy any claim, demand or liability, or in settlement of any
claim, demand, action, suit or proceeding settled with the express written
consent of the Escrow Agent, and all costs and expenses, including, but not
limited to, counsel fees and disbursements, paid or incurred in investigating or
defending against any such claim, demand, action, suit or proceeding.
5.
Termination of
Agreement and Resignation of Escrow Agent
5.1
This Escrow Agreement shall terminate upon disbursement of all of the Escrowed
Funds, provided that the rights of the Escrow Agent and the obligations of the
Company under Section 4 shall survive the termination hereof.
5.2
The Escrow Agent may resign at any time and be discharged from its duties as
Escrow Agent hereunder by giving the Company at least five (5) business days
written notice thereof (the “Notice Period”). As
soon as practicable after its resignation, the Escrow Agent shall, if it
receives notice from the Company within the Notice Period, turn over to a
successor escrow agent appointed by the Company all Escrowed Funds (less such
amount as the Escrow Agent is entitled to retain pursuant to Section 7) upon
presentation of the document appointing the new escrow agent and its acceptance
thereof. If no new agent is so appointed within the Notice Period, the Escrow
Agent shall return the Escrowed Funds to the parties from which they were
received without interest or deduction.
6.
Form of Payments by
Escrow Agent
6.1
Any payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of
this Escrow Agreement shall be made by wire transfer unless directed to be made
by check by the Company and the Initial Purchaser.
6.2
All amounts referred to herein are expressed in United States Dollars and all
payments by the Escrow Agent shall be made in such dollars.
7.
Compensation. The
Escrow Agent shall be entitled to the following compensation from the
Company:
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7.1
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Documentation
Fee: The
Company shall pay a documentation fee to the Escrow Agent of $1,500, on
the Closing Date.
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7.2
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Closing Fee:
The Company shall pay a fee of $500 to the Escrow Agent at each Closing.
For purposes of this Section 7.2, a Closing shall mean each time the
Escrow Agent receives joint instructions from the Company and the Initial
Purchaser to disburse Escrowed Funds in accordance with the terms of this
Agreement.
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7.3
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Interest. The
Company hereby agrees that Escrow Agent shall retain 100% of the interest
earned during the time the Escrowed Funds are held in escrow
hereunder.
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8. Notices. All notices,
requests, demands, and other communications provided herein shall be in writing,
shall be delivered by hand or by first-class mail, shall be deemed given when
received and shall be addressed to parties hereto at their respective addresses
first set forth in the recitals above and on Exhibit A
hereto.
9.
Further
Assurances
From time to time on and after the date hereof, the Company shall deliver
or cause to be delivered to the Escrow Agent such further documents and
instruments and shall do and cause to be done such further acts as the Escrow
Agent shall reasonably request (it being understood that the Escrow Agent shall
have no obligation to make any such request) to carry out more effectively the
provisions and purposes of this Escrow Agreement, to evidence compliance
herewith or to assure itself that it is protected in acting
hereunder.
10. Consent to Service of
Process
The Company hereby irrevocably consents to the jurisdiction of the courts
of the State of Virginia and of any Federal court located in such state in
connection with any action, suit or proceedings arising out of or relating to
this Escrow Agreement or any action taken or omitted hereunder, and waives
personal service of any summons, complaint or other process and agrees that the
service thereof may be made by certified or registered mail directed to it at
the address listed on Exhibit A hereto.
11. Miscellaneous
11.1 This Escrow
Agreement shall be construed without regard to any presumption or other rule
requiring construction against the party causing such instrument to be drafted.
The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in
this Escrow Agreement, refer to the Escrow Agreement in its entirety and not
only to the particular portion of this Escrow Agreement where the term is used.
The word “person” shall mean any natural person, partnership, corporation,
government and any other form of business of legal entity. All words or terms
used in this Escrow Agreement, regardless of the number or gender in which they
were used, shall be deemed to include any other number and any other gender as
the context may require. This Escrow Agreement shall not be admissible in
evidence to construe the provisions of any prior agreement.
11.2
This Escrow Agreement
and the rights and obligations hereunder of the Company may not be assigned.
This Escrow Agreement and the rights and obligations hereunder of the Escrow
Agent may be assigned by the Escrow Agent. This Escrow Agreement shall be
binding upon and inure to the benefit of each party’s respective successors,
heirs and permitted assigns. No other person shall acquire or have any rights
under or by virtue of this Escrow Agreement. This Escrow Agreement may not be
changed orally or modified, amended or supplemented without an express written
agreement executed by the Escrow Agent, the Company and the Initial Purchaser.
This Escrow Agreement is intended to be for the sole benefit of the parties
hereto and the Additional Purchasers and their respective successors, heirs and
permitted assigns, and none of the provisions of this Escrow Agreement are
intended to be, nor shall they be construed to be, for the benefit of any third
person.
11.3 This Escrow
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of Virginia. The representations and warranties contained in
this Escrow Agreement shall survive the execution and delivery hereof and any
investigations made by any party. The headings in this Escrow Agreement are for
purposes of reference only and shall not limit or otherwise affect any of the
terms thereof.
12. Execution of
Counterparts This Escrow Agreement may
be executed in a number of counterparts, by facsimile, each of which shall be
deemed to be an original as of those whose signature appears thereon, and all of
which shall together constitute one and the same instrument. This Escrow
Agreement shall become binding when one or more of the counterparts hereof,
individually or taken together, are signed by all the parties.
[Remainder
of page intentionally left blank
Signature
pages follow]
IN
WITNESS WHEREOF, the parties have executed and delivered this Escrow Agreement
on the day and year first above written.
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ESCROW
AGENT:
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ESCROW,
LLC
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By:
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/s/
Xxxxxxx Xxxxxxx
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COMPANY:
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By:
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/s/
Xxxxx Xx
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Name:
Xxxxx Xx
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Title:
Authorized Signatory
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INITIAL
PURCHASER:
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THE
CHINA HAND FUND I, LLC
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By:
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/s/
Xxxx X. Xxxxx
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Name:
Xxxx X. Xxxxx
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Title:
Member-Manager
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EXHIBIT
A
PARTIES
TO AGREEMENT
00xx
Xxxxx, XxxxXx Xxxxxxxx, XxxXxx Xxxx
XxXxx
Xxxxxxxx
Tianjin,
People’s Republic of China
Attention:
_________________________
Tel. No.:
__________________________
Fax No.:
___________________________
Email:
____________________________________
(Signature)
Escrow,
LLC
Escrow
Agent: Escrow, LLC
Contact:
Xxxxxxx X. Xxxxxxx
00 Xxxx
Xxxxxx, Xxxxx 000
Xxxxxxxxx,
XX 00000
Telephone:
(000) 000-0000
Fax:
(000) 000-0000
Email:
xxxxxxxx@xxxxxxxxx.xxx
____________________________
China
Hand Fund I, LLC
000 Xxxx
Xxxx Xxxx
Xxxxxxxxx,
XX 00000
Attn:
Xxxx Xxxxxxx
Tel. No.:
000-000-0000
Fax No.:
000-000-0000
Email:
xxxxxxxx@xxxxxxxxxxxxx.xxx
____________________________________
(Signature)
EXHIBIT
B
SUBCRIPTION
INFORMATION
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Name
of Subscriber
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Address
of Subscriber
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Amount
of Securities Subscribed
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US
Dollar Amount Submitted
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Taxpayer
ID Number/ Social
Security Number
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EXHIBIT
C
DISBURSEMENT
REQUEST
Pursuant
to that certain Escrow Agreement by and among China New Energy Group Company,
The China Hand Fund I, LLC and Escrow, LLC., China New Energy Group Company and
The China Hand Fund I, LLC hereby request disbursement of funds in the amount
and manner described below from Cardinal Bank account number _____________,
styled Escrow, LLC Escrow Account.
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Please
disburse to:
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Amount
to disburse:
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Form
of distribution:
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Payee:
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Name:
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Address:
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City/State:
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Zip:
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Bank:
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Statement
of event or condition which calls for this request for
disbursement:
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Disbursement
approved by:
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(Signature)
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Date
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The
China Hand Fund I, LLC
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(Signature)
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Date
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