HOLDBACK ESCROW AGREEMENT
Exhibit
10.2
This
Holdback Escrow Agreement, dated as of August 26, 2008 (this “Agreement”), is entered into
by and among China Valves Technology, Inc. (f/k/a Intercontinental Resources,
Inc.), a Nevada corporation, and all predecessors thereof (collectively, the
“Company”), the
investors set forth on Exhibit A and
signatory hereto (collectively, the “Investors”), and Escrow,
LLC (the “Escrow
Agent”).
WITNESSETH:
WHEREAS,
the Company proposes to make a private offering to the Investors (the “Offering”) of the Company’s
common stock, par value $0.001 per share pursuant to that certain Securities
Purchase Agreement, dated as of the date hereof, by and among the Company, the
Investors and certain other parties signatory thereto (the “Securities Purchase
Agreement”) (capitalized terms used but not otherwise defined herein
which are defined in the Securities Purchase Agreement shall have the respective
meanings given to such terms in the Securities Purchase Agreement);
WHEREAS,
pursuant to the Securities Purchase Agreement and the Closing Escrow Agreement,
the Company has agreed that an aggregate of $3,150,000 of the aggregate
Investment Amounts paid by Investors to the escrow account established in
accordance with the Closing Escrow Agreement (the “Escrowed Funds”), will be
deposited at Closing with the Escrow Agent, to continue to be held in escrow,
administered and distributed as described in Section 4.14 of the Securities
Purchase Agreement and in accordance with Section 3 of this Agreement;
and
WHEREAS,
as a material inducement for the Investors to enter into the Securities Purchase
Agreement and consummate the Closing, the Company and Escrow Agent have agreed
to enter into 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 Escrow Agent to act as escrow agent in
accordance with the terms of this Agreement, and the Escrow Agent hereby accepts
such appointment.
2. Delivery of the Escrowed
Funds.
2.1 The
Company hereby directs that the Escrowed Funds be delivered simultaneously with
the Closing to the Escrow Agent’s account (the “Escrow Account”) as
follows:
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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
Escrowed
Funds: $3,150,000
3. Escrow Agent to Hold and
Disburse Escrowed Funds. Promptly following the Closing, the Escrow Agent
will provide written notice to the Company (for simultaneous distribution to the
Investors) that the Escrow Agent has received the entire amount of Escrowed
Funds in the Escrow Account. The Escrow Agent will hold and disburse
the Escrowed Funds received by it pursuant to the terms of this Agreement, as
follows:
3.1 Board Holdback
Escrow. Pursuant to Section 4.14(a) of the Securities Purchase
Agreement, the Company has undertaken that no later than ninety (90) days
following the Closing Date, the Board of Directors of the Company shall be
comprised of a minimum of five members (at least two of whom shall be fluent
English speakers who possess experience such that
he or she can fulfill its fiduciary obligations and other responsibilities as a
director of a United States publicly listed company incorporated in the
United States), a majority of which shall be “independent directors” as such
term is defined in NASDAQ Marketplace Rule 4200(a)(15) and a meeting of such
full Board of Directors shall be convened within such ninety (90) days following
the Closing Date. The Board of Directors shall appoint Board
committees, which shall include, but not be limited to, an Audit Committee,
Nominating Committee and Compensation Committee. The chairperson of
such Audit Committee, which shall be acceptable to the Investors, shall be
nominated within ninety (90) days following the Closing Date (such Board of
Directors meeting the criteria set forth herein shall be referred to as a “Qualified
Board”). To secure the establishment of a Qualified Board, the
Company has agreed that $1,500,000 of the Escrowed Funds (the “Board Holdback Escrow Amount”) shall be held
in the Escrow Account subject to the satisfaction of the Company’s obligations
under this Section 3.1 and Section 4.14(a) of the Securities Purchase Agreement
and subject to the provisions of Section 4.14(d) of the Securities Purchase
Agreement and Section 3.4 of this Agreement with respect to payment of partial
liquidated damages to Investors from such amount. Upon the
establishment of a Qualified Board, the Company and Investors that have invested
at least a majority of the total Investment Amount under the Purchase Agreement
(a “Majority in Interest of the
Investors”) shall execute and deliver written instructions (such written
instructions shall not be unreasonably withheld, conditioned, or delayed by the
Investors)
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with
reference to this Section 3.1 to release the Board Holdback Escrow Amount to the
Company (“Instructions to
Release Board Holdback”). Within one (1) Business Day
following its receipt of Instructions to Release Board Holdback (with wire
instructions attached) jointly executed by the Company and a Majority in
Interest of the Investors, the Escrow Agent shall distribute the Board Holdback
Escrow Amount in accordance with such written instructions. It is
expressly understood that the Company shall have the sole authority to select
the members of the Board of Directors of the Company, provided that such members
shall satisfy the requirements as set forth in Section 3.1 of this Agreement and
Section 4.14(a) of the Securities Purchase Agreement. For the
avoidance of doubt, the Board Holdback Escrow Amount shall be released from the
Escrow Account upon the establishment of a Qualified Board in accordance with
Section 3.1 of this Agreement (after deducting any liquidated damages payable to
the Investors pursuant to Section 3.4 hereof) notwithstanding whether a
Qualified Board is established within ninety (90) days following the Closing
Date.
3.2 CFO Holdback
Escrow. Pursuant to Section 4.14(b) of the Securities Purchase
Agreement, the Company has undertaken that no later than ninety (90) days
following the Closing Date, the Company will hire a full-time chief financial
officer who has experience as the chief financial officer of a United States
public reporting company and who is (i) a certified public accountant, (ii)
fluent in English, and (iii) an expert in (x) GAAP and (y) auditing procedures
and compliance for United States public companies (such a chief financial
officer being referred to as a “Qualified
CFO”). The Company shall enter
into an employment agreement with the
Qualified CFO for a term of no less than two years. Should the
Qualified CFO be dismissed at any time prior to the later to occur of the second
anniversary of (x) his or her employment agreement or (y) the Closing Date,
then
the Company shall replace the Qualified CFO with a chief financial officer who
fits the criteria set forth herein as soon as practicable. By
9:00 a.m. (New York time) on the second Trading Day following the hiring of such
Qualified CFO, the Company will file a Current Report on Form 8-K disclosing the
information required by Item 5.02 of Form 8-K. Accordingly,
$1,500,000 (the “CFO Holdback
Escrow Amount”)
of the Escrowed Funds is to be held in the Escrow Account subject to the
satisfaction of the Company’s obligations under this Section 3.2 and Section
4.14(b) of the Securities Purchase Agreement and subject to the provisions of
Section 4.14(d) of the Securities Purchase Agreement and Section 3.4 of this
Agreement with respect to payment of partial liquidated damages to Investors
from such amount. Upon the Company’s satisfaction of the aforesaid
obligations in this Section 3.2 and Section 4.14(b) of the Securities Purchase
Agreement, the Company and a Majority in Interest of the Investors shall execute
and deliver written instructions (such written instructions shall not be
unreasonably withheld, conditioned, or delayed by the Investors) with reference
to this Section 3.2 to release the CFO Holdback Escrow Amount to the Company
(“Instructions to Release CFO
Holdback”). Within one (1) Business Day following its receipt
of Instructions to Release CFO Holdback (with wire instructions attached)
jointly executed by the Company and a Majority in Interest of the Investors, the
Escrow Agent shall distribute the CFO Holdback Escrow Amount, less any portion
thereof previously required to be distributed to Investors as partial liquidated
damages in accordance with Section 3.4 of this Agreement, in accordance with
such written instructions. For the avoidance of doubt, the CFO
Holdback Escrow Amount shall be released from the Escrow Account (after
deducting any liquidated damages payable to the Investors pursuant to Section
3.4 hereof) upon the appointment of a Qualified CFO in accordance with Section
3.2 of this Agreement notwithstanding whether a Qualified CFO is appointed
within ninety (90) days following the Closing Date.
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3.3 IR Holdback
Escrow. Pursuant to Section 4.14(c) of the Securities Purchase
Agreement, the Company has undertaken that no later than thirty (30) days
following the Closing Date, the Company shall have hired CCG Elite as its
investor relations firm. Accordingly, $150,000 (the “IR Holdback Escrow Amount”) of the
Escrowed Funds is to be held in the Escrow Account subject to the satisfaction
of the Company’s obligations under this Section 3.3 and Section 4.14(c) of the
Securities Purchase Agreement. The IR
Holdback Escrow Amount shall remain in the Escrow Account and shall only be
released by the Escrow Agent to the Company upon the Escrow Agent’s receipt of
written notice from the Company and a Majority in Interest of the Investors that
the Company has hired the aforementioned investor relations firm and then only
to the extent that the Company provides evidence of investor relations related
expenses. From time to time as the Company incurs investor
relations related expenses, it shall reflect such amount on written instructions
(such written instructions shall not be unreasonably withheld, conditioned, or
delayed by the Investors) with reference to this Section 3.3 to release a
portion of the IR Holdback Escrow Amount to the Company (“Instructions to Release IR
Holdback”), which shall specify the dollar amount and payee bank account
to which the applicable amount shall be transferred. The Escrow Agent
shall, upon receipt of Instructions to Release IR Holdback (on one or more
occasions) jointly executed by the Company and a Majority in Interest of the
Investors, pay the IR Holdback Escrow Amount in accordance with such written
instructions, such payment or payments to be made by wire transfer within one
(1) Business Day of receipt of such written instructions.
3.4 If
for any or no reason whatsoever, the Escrow Agent does not receive written
notice from the Company and the Majority in Interest of the Investors directing
the release to the Company of (i) the Board Holdback Escrow Amount on or prior
to ninety-one (91) calendar days following the Closing Date (the “Board Compliance Period”) or
(ii) CFO Holdback Escrow Amount on or prior to ninety-one (91) calendar days
following the Closing Date (the “CFO Compliance Period”) (each
such failure or breach being referred to as a “Holdback Event,” and for
purposes of this Section the date such Holdback Event occurs being referred to
as “Holdback Event
Date”), then in addition to any other rights the Investors may have
hereunder, under the Securities Purchase Agreement or under applicable law, on
each such Holdback Event Date and on each monthly anniversary of such Holdback
Event Date (if the applicable Holdback Event shall not have been cured by such
date) until the applicable Holdback Event is cured, the Escrow Agent (on behalf
of the Company) will deliver and pay to each Investor by wire transfer an amount
in immediately available funds, as partial liquidated damages and not as a
penalty, equal to 1% of the aggregate Investment Amount paid by such Investor
for Shares pursuant to the Securities Purchase Agreement. The partial
liquidated damages payable under this Section 3.4 shall be independent of any
other damages payable under this Agreement or any other Transaction Document and
shall apply on a daily pro-rata basis for any portion of a month prior to the
cure of an Holdback Event. In no event will the Company be liable for
partial liquidated damages under this Agreement in excess of 1% of the aggregate
Investment Amount of the Investors in any 30-day period in respect of any single
Holdback Event (it being understood that if the Company suffers an Holdback
Event relating to its failure to comply with Section 4.14(a) of the Securities
Purchase Agreement and a Holdback Event relating to its failure to comply with
Section 4.14(b) of the Securities Purchase Agreement in a 30-day period it will
be responsible for 2% of partial liquidated damages under this provision in a
30-day period).
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It is
further understood that partial liquidated damages under this Agreement are
limited to the Board Holdback Escrow Amount as to that Holdback Event and the
CFO Holdback Escrow Amount as to that Holdback Event; provided, that the
Investors are entitled to all other remedies available under applicable
law. On any Holdback Event Date, the Company will deliver to each
Investor a written notice which shall set forth the relevant Holdback
Event. Schedule 1 attached
hereto shall set forth the name, address, Investment Amount and delivery
instructions for any partial liquidated damages contemplated hereby of each
Investor.
4. Interpleader. Should
any controversy arise among the parties hereto with respect to this Agreement or
with respect to the right to receive the Escrowed 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
the 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 4 shall be filed in any court of competent jurisdiction in New York, and
the portion of the Escrowed Funds in dispute shall be deposited with the court
and in such event the Escrow Agent shall be relieved of and discharged from any
and all obligations and liabilities under and pursuant to this Agreement with
respect to that portion of the Escrowed Funds.
5.Exculpation and
Indemnification of Escrow Agent and Investors.
5.1 The
Escrow Agent shall have no duties or responsibilities other than those expressly
set forth herein. The Escrow Agent and the Investors shall have no duty to
enforce any obligation of any person other than itself 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
and the Investors shall be under no liability to the other parties hereto or
anyone else, by reason of any failure, on the part of any other 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 Agreement referenced below, and except for written
instructions given to the Escrow Agent by the Company and a Majority in Interest
of the Investors relating to the Escrowed Funds, the Escrow Agent shall not be
obligated to recognize any other agreement.
5.2 Neither
the Escrow Agent nor the Investors shall 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 or the Investors to be
genuine and to be signed or presented by the proper person or persons.
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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.
5.3 Neither
the Escrow Agent nor the Investors shall 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 or the Investors be
responsible or liable to the Company 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 Agreement. The
Escrow Agent shall have no responsibility with respect to the use or application
of the Escrowed Funds pursuant to the provisions hereof.
5.4 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 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.
5.5 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 to the Company 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 by the
Company 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
5.6.
5.6 The
Escrow Agent will be indemnified and held harmless by the Company from and
against all expenses, including all reasonable 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
Agreement, the services of the Escrow Agent hereunder, except for claims
resulting from the gross negligence or willful malfeasance of the Escrow Agent
or breach of this 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 the
Company, notify it thereof in writing, but the failure by the Escrow Agent to
give such notice shall not relieve any such party from any liability which the
Company may have to the Escrow Agent hereunder.
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5.7 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, reasonable counsel fees and disbursements, paid or incurred in
investigating or defending against any such claim, demand, action, suit or
proceeding.
6. Resignation of Escrow
Agent. The Escrow Agent may resign at any time and be
discharged from its duties as Escrow Agent hereunder by giving the Company and
the Investors at least ten (10) 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 8) 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 or as directed by the
Investors who delivered the same, without interest or deduction with the
understanding that such Escrowed Funds will continue to be subject to the
provisions of this Agreement.
7. Form of Payments by Escrow
Agent.
7.1 Any
payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of this
Agreement shall be made by wire transfer unless directed to be made by check by
the receiving party.
7.2 All
amounts referred to herein are expressed in United States Dollars (US$) and all
payments by the Escrow Agent shall be made in such dollars.
8. Compensation. At
the Closing, the Company shall pay a fee to the Escrow Agent of $ 1,000.00 (it
being understood that no Investor shall be responsible to pay the Escrow Agent
any compensation or fees hereunder). Interest payments, if any, will be shared
equally at the prevailing bank rate.
9. 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 All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if sent by hand-delivery, by facsimile (followed by first-class
mail), by nationally recognized overnight courier service or by prepaid
registered or certified mail, return receipt requested, to the addresses set
forth below.
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| If to Investors: | |
| To the address set forth on the signature pages hereto. | |
|
|
With a copy
to:
Winston
& Xxxxxx LLP
000 Xxxx Xxxxxx
Xxx
Xxxx, XX 00000
Facsimile: (000)
000-0000
Attn.: Xxxx
X. Xxxxx, Esq.
If to the
Company:
Xx.00
Xxxx Xxxxxxx Xxxx
Xxxxxxx
Xxxx, Xxxxx Xxxxxxxx, People’s Republic of China
Facsimile: 00-000-000-0000
Attention: Chief
Executive Officer
With a copy to:
Xxxxxx
Xxxx Xxxxx Raysman & Xxxxxxx LLP
000
0xx
Xxxxxx XX
Xxxxxxxxxx,
X.X. 00000
Facsimile: (000)
000-0000
Attn.: Xxxxx
X. Xxxxxxxxxx, Esq.
If to Escrow
Agent:
Escrow,
LLC
00
Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxxx Xxxxxxx
Telephone:
(000) 000-0000
Fax: (000)
000-0000
Email:
xxxxxxxx@xxxxxxxxx.xxx
|
10. 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 Agreement, to evidence
compliance herewith or to assure itself that it is protected in acting
hereunder.
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11. Miscellaneous.
11.1 This
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 Agreement, refer to the Agreement in its entirety and not only to the
particular portion of this 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
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 Agreement shall not be admissible in evidence to construe the
provisions of any prior agreement.
11.2 This
Agreement and the rights and obligations hereunder of the Company may be
assigned by the Company only following the prior written consent of the Majority
in Interest of the Investors. This Agreement and the rights and obligations
hereunder of the Escrow Agent may be assigned by the Escrow Agent only with the
prior consent of the Company and the Majority in Interest of the
Investors. An Investor may assign its rights under this Agreement
without any consent from any other party. This 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 Majority in Interest
of the Investors. This Agreement is binding upon and intended to be for the sole
benefit of the parties hereto and their respective successors, heirs and
permitted assigns, and none of the provisions of this Agreement are intended to
be, nor shall they be construed to be, for the benefit of any third
person.
11.3 This
Agreement shall be governed by, and construed in accordance with, the internal
laws of the State of New York. The representations and warranties contained in
this Agreement shall survive the execution and delivery hereof and any
investigations made by any party. Each party agrees that all legal proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement shall be commenced exclusively in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New York
Courts”). Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the New York Courts for the adjudication of any
dispute hereunder or in connection herewith, and hereby irrevocably waives, and
agrees not to assert in any such proceeding, any claim that it is not personally
subject to the jurisdiction of any such New York Court, or that such proceeding
has been commenced in an improper or inconvenient forum. Each party hereto
hereby irrevocably waives personal service of process and consents to process
being served in any such proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any manner permitted by law.
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11.4 The
headings in this Agreement are for purposes of reference only and shall not
limit or otherwise affect any of the terms thereof. This 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 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
blank-signature pages follow]
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IN
WITNESS WHEREOF, the parties have executed and delivered this Agreement on the
day and year first above written.
ESCROW
AGENT
ESCROW,
LLC
By:_________________________________
Name: Xxxxxxx
X. Xxxxxxx
Title:
Vice-President
THE
COMPANY
By:_________________________________
Name: Siping
Fang
Title:
Chief Executive Officer
NAME
OF INVESTOR:
____________________________________
By:_____________________
Name:
Title:
[Signature
page to Holdback Escrow Agreement]
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