ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Escrow Agreement") is made and executed as of October 27, 2009 among VLOV, Inc., a Nevada corporation (the "Company"), Gilford Securities Incorporated, as the placement agent (the "Placement Agent"), Corporate Stock Transfer, Inc., as the escrow manager (the "Escrow Manager"), and United Western Bank, as the bank escrow agent (the "Bank Escrow Agent"). Capitalized terms used but not defined herein shall have the meaning set forth in the Securities Purchase Agreement (as defined below).
RECITALS
A. The Company is in the process of raising capital in an offering (the "Offering") placed by the Placement Agent of up to an aggregate of 2,797,203 shares of the Company's newly-designated Series A preferred stock, par value $0.00001 per share ("Preferred Stock"), for a purchase price of $2.86 per share and for an aggregate purchase price of up to $8,000,000.58. Each purchaser ("Purchaser") in the Offering shall also be entitled, for no additional consideration, to one warrant ("Warrant") to purchase one share of the Company's common stock, par value $0.00001 per share ("Common Stock"), at an exercise price of $3.43 per share, for every two shares of Preferred Stock purchased in the Offering.
B. Each Purchaser subscribing to purchase Preferred Stock and Warrants will enter into the Securities Purchase Agreement with the Company and the other Purchasers party thereto (the “Securities Purchase Agreement”) and will tender such Purchaser's aggregate purchase price for the Preferred Stock (the "Purchase Price") to an escrow account established pursuant to this Escrow Agreement (the "Escrow Account").
C. The Company will close upon $4,000,000 of Preferred Stock and Warrants on or before October 23, 2009 (the "Initial Closing"), and will close upon such additional amount of Preferred Stock and Warrants, if any, that may be sold on or before November 6, 2009 (the "Final Closing", and together with the Initial Closing, the "Closings"), up to an aggregate of $8,000,000.58 in both Closings.
D. The aggregate Purchase Price received from all Purchasers (the "Escrow Funds") will be held in the Escrow Account until such time as the Company and the Placement Agent authorize the Escrow Manager to release such funds to the Company at the Initial Closing and the Final Closing in accordance with the terms hereof; provided that the Company acknowledges and agrees that (i) $150,000 of the Escrow Funds shall be retained from the proceeds of the Initial Closing (the "IR Cash"), and (ii) the Company shall deposit 300,000 Warrants (the "IR Warrants"), in each case for distribution to investor relations firms acceptable to ARC China, Inc. (“ARC China”), as a consultant for the Purchasers ("IR Firms"), as compensation for their services and expenses incurred for a period of 12 months from the date of the Final Closing (the "IR Period").
NOW, THEREFORE, in consideration of the mutual agreements and covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:
1. Appointment of Escrow Manager; Deposit of Escrow Funds. The Placement Agent and the Company hereby appoint the Escrow Manager as their agent and custodian to invest and disburse the Escrow Funds deposited with the Escrow Manager pursuant to the terms of this Escrow Agreement. The Placement Agent and the Company further appoint the Escrow Manager as their agent and custodian to invest and disburse the IR Cash and the IR Warrants deposited with the Escrow Manager to IR Firms pursuant to this Escrow Agreement.
2. Methods of Disposition of the Escrow Funds. The Escrow Manager will invest the Escrow Funds, the IR Cash and the IR Warrants as specified in this Escrow Agreement until authorized hereunder to deliver such Escrow Funds, IR Cash and IR Warrants, or a portion thereof, as follows:
(a) At the Initial Closing, upon receipt of a certificate in the form of Schedule I attached hereto executed by the Placement Agent and the Company, the Escrow Manager shall deliver the aggregate Purchase Price received from all Purchasers in the Initial Closing, net of the IR Cash to be held in escrow for release to IR Firms, as directed in such certificate;
(b) At the Final Closing, upon receipt of a certificate in the form of Schedule II attached hereto executed by the Placement Agent and the Company, the Escrow Manager shall deliver the aggregate Purchase Price received from all Purchasers in the Final Closing, if any, as directed in such certificate;
(c) At any time during the IR Period, upon receipt of a certificate or certificates in the form of Schedule III attached hereto executed by the Placement Agent, the Escrow Manager shall deliver all or any portion of the IR Cash and IR Warrants to the IR Firms and in the amounts specified therein;
(d) At the expiration of the IR Period, upon receipt of a written request from the Company, the Escrow Manager shall deliver to the Company the portion of the IR Cash and IR Warrants, if any, that have not been distributed to IR Firms pursuant to Section (c); or
3. Purpose of the Escrow Account. The Placement Agent and the Company acknowledge and agree that the purpose of the Escrow Account is twofold: (i) to hold the aggregate Purchase Price received from the Purchasers pending receipt of instructions for release in accordance with Section 2 at the Initial Closing and the Final Closing, if any; and (ii) to hold the IR Cash and IR Warrants for distribution to the IR Firms and in the amounts specified by ARC China.
4. Relationship Between Escrow Manager and Bank Escrow Agent. The Bank Escrow Agent shall take directions only from the Escrow Manager with respect to the Escrow Funds, IR Cash and IR Warrants.
5. Non-Interest Bearing Account. The Escrow Manager shall deposit the Escrow Funds and IR Cash into a non-interest bearing account held with the Bank Escrow Agent.
6. Concerning the Escrow Manager.
(a) The Escrow Manager shall not be under any duty to give the Escrow Funds, IR Cash and IR Warrants held by it hereunder any greater degree of care than it gives its own similar property and shall not be required to invest any funds held hereunder except as directed pursuant to Section 5 of this Escrow Agreement.
(b) This Escrow Agreement expressly sets forth all the duties of the Escrow Manager with respect to any and all matters pertinent hereto. No implied duties or obligations shall be read into this Escrow Agreement against the Escrow Manager. The Escrow Manager shall not be bound by the provisions of any other agreement among the parties hereto except this Escrow Agreement.
(c) The Escrow Manager shall not be liable, except for its own gross negligence, willful misconduct or breach of this Escrow Agreement, and, except with respect to claims based upon such gross negligence, willful misconduct or breach of this Escrow Agreement, that are successfully asserted against the Escrow Manager, the other parties hereto shall jointly and severally indemnify and hold harmless the Escrow Manager (and any successor Escrow Manager) from and against any and all losses, liabilities, claims, actions, damages and expenses, including reasonable attorney's fees and disbursements, arising out of and in connection with this Escrow Agreement. Without limiting the foregoing, the Escrow Manager shall in no event be liable in connection with its investment or reinvestment of any Escrow Funds, IR Cash or IR Warrants held by it hereunder in good faith, in accordance with the terms hereof, including, without limitation, any liability for any delays (not resulting from its gross negligence, willful misconduct or breach of this Escrow Agreement) in the investment or reinvestment of the Escrow Funds, IR Cash or IR Warrants or any loss of interest incident to any such delays.
(d) The Escrow Manager shall be entitled to rely upon any order, judgment, certification, demand, notice, instrument or other writing delivered to it hereunder without being required to determine the authenticity or the correctness of any fact stated therein or the proprieties, validity or the service thereof. The Escrow Manager may act in reliance upon any instrument or signature reasonably believed by it to be genuine and may assume that any person purporting to give notice or advice, accept receipt of or execute any document, or make any statement in connection with the provisions hereof, has been duly authorized to do so.
(e) The Escrow Manager may act pursuant to the advice of counsel with respect to any matter relating to this Escrow Agreement and shall not be liable for any action taken or omitted in accordance with such advice, except for any action constituting gross negligence, willful misconduct or a breach of this Escrow Agreement.
(f) The Escrow Manager is serving as escrow manager only and has no interest in the Escrow Funds, IR Cash or IR Warrants deposited hereunder. Any payments of income from this Escrow Agreement shall be subject to withholding regulations then in force with respect to United States Taxes. The Company will provide the Escrow Manager with appropriate W-9 forms for tax identification number certification or nonresident alien certifications. This Section 6(f) and Section 6(c) shall survive notwithstanding any termination of this Escrow Agreement or the resignation of the Escrow Manager.
(g) The Escrow Manager makes no representation as to the validity, value, genuineness or the collectibility of any security or other documents or instrument held by or delivered to it.
(h) The Escrow Manager shall not be called upon to advise any party as to the wisdom in selling or retaining or taking or refraining from any action with respect to any securities or other property deposited hereunder.
(i) The Escrow Manager (and any successor Escrow Manager) may at any time resign as such by delivering the Escrow Funds, IR Cash and IR Warrants to any successor Escrow Manager jointly designated by the other parties hereto in writing, or to any court of competent jurisdiction, whereupon the Escrow Manager shall be discharged of and from any and all further obligations arising in connection with this Escrow Agreement. The resignation of the Escrow Manager will take effect on the earlier of (i) the appointment of a successor (including a court of competent jurisdiction) or (ii) the day which is 30 days after the date of delivery of its written notice of resignation to the other parties hereto. If at that time the Escrow Manager has not received a designation of a successor Escrow Manager, the Escrow Manager's sole responsibility after that time shall be to safekeep the Escrow Funds, IR Cash and IR Warrants until receipt of a designation of successor Escrow Manager or a joint written disposition instruction by the other parties hereto or a final order of a court of competent jurisdiction.
(j) The Escrow Manager shall have no responsibility for the contents of any writing of the arbitrators or any third party contemplated herein as a means to resolve disputes and may rely without any liability upon the contents thereof.
(k) In the event of any disagreement between the other parties hereto resulting in adverse claims or demands being made in connection with the Escrow Funds, IR Cash or IR Warrants or in the event that the Escrow Manager in good faith is in doubt as to what action it should take hereunder, the Escrow Manager shall be entitled to retain the Escrow Funds, IR Cash or IR Warrants until the Escrow Manager shall have received (i) a final nonappealable order of a court of competent jurisdiction directing delivery of the Escrow Funds, IR Cash or IR Warrants or (ii) a written agreement executed by the other parties hereto directing delivery of the Escrow Funds, IR Cash or IR Warrants, in which event the Escrow Manager shall disburse the Escrow Funds, IR Cash or IR Warrants in accordance with such order or agreement. Any court order referred to in clause (i) above shall be accompanied by a legal opinion of counsel for the presenting party satisfactory to the Escrow Manager to the effect that said court order is final and nonappealable. The Escrow Manager shall act on such court order and legal opinions without further question.
(l) Notwithstanding anything to the contrary contained herein, in the event of any dispute between the parties hereto as to the facts of default, the validity or meaning of these instructions or any other fact or matter relating to the transaction between the parties, the Escrow Manager is instructed as follows:
(i) That it shall be under no obligation to act, except as and to the extend directed under process or order of court, or until it has been adequately indemnified to its full satisfaction, and shall sustain no liability for its failure to act pending such process or court order or indemnification; and
(ii) That it may in its sole and absolute discretion, deposit the property herein or so much thereof as remains in its hands with the then Clerk, or acting Clerk, of the District Court of the City and County of Denver, State of Colorado, interplead the parties hereto, and upon so depositing such property and filing its complaint in interpleader it shall be relieved of all liability under the terms hereof as to the property so deposited, and furthermore, the parties hereto for themselves, their heirs, legal representatives, successors and assigns do hereby submit themselves to the jurisdiction of said court and do hereby appoint the then Clerk, or acting Clerk, of said court as their Agent for the service of all process in connection with such proceedings. The institution of any such interpleader action shall not impair the rights of the Escrow Manager under Section 6(c) above.
(m) The Company agrees to pay the Escrow Manager as compensation for the services of the Escrow Manager hereunder, an aggregate of $3,000 per year as payment in full for the services to be rendered by the Escrow Manager hereunder. In addition, the Company agrees to pay all reasonable expenses, disbursements and advances incurred or made by the Escrow Manager in performance of its duties hereunder (including reasonable fees, expenses and disbursements of its counsel).
(n) No printed or other matter in any language (including, without limitation, prospectuses, notices, reports and promotional materials) which mentions the Escrow Manager's name or the rights, powers or duties of the Escrow Manager shall be issued by the other parties hereto or on such parties' behalf unless the Escrow Manager shall first have given its specific written consent to such mention(s).
7. Notices. Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing. All such notices shall be delivered personally, by facsimile or by reputable overnight courier (costs prepaid), and shall be deemed given or made when delivered personally, the business day sent if sent by facsimile or one business day after delivery to the overnight courier for next business day delivery. All such notices are to be given or made to the parties at the following addresses (or to such other address as any party may designate by a notice given in accordance with the provisions of this Section):
If to the Company:
VLOV, Inc.
No. 1749-1751 Xiangjiang Road
Shishi City, Fujian Province
P.R. China
Attention: Qingqing Wu
Facsimile: +86 595 85498898
With a copy to (which shall not be deemed notice):
Richardson & Patel LLP
10900 Wilshire Boulevard, Suite 500
Los Angeles, California 90024
Attention: Kevin K. Leung, Esq.
Facsimile: (310) 208-1154
If to the Placement Agent:
Gilford Securities Incorporated
777 Third Avenue, 17th Floor
New York, New York 10017
Attention: Robert Maley
Facsimile: (212) 223-1683
If to the Escrow Manager:
Corporate Stock Transfer, Inc.
3200 Cherry Creek Drive, Suite 430
Denver, CO 80209
Attention: Carylyn Bell
Facsimile: (303) 282-5800
If to the Bank Escrow Agent:
United Western Bank
700 Seventeenth Street, Suite 100
Denver, CO 80202
Attention: John Fiedler
Facsimile: ________________
8. Waivers and Amendments. This Escrow Agreement may be amended, superseded, canceled, renewed or extended and the terms hereof may be waived only by a written instrument signed by the Placement Agent and the Company.
9. Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures provided by facsimile or electronic transmission will be deemed to be original signatures.
10. Governing Law; Severability. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Colorado, without reference to the choice of law or conflicts of law principles thereof. Should any clause, section or part of this Agreement be held or declared to be void or illegal for any reason, all other clauses, sections or parts of this Agreement shall nevertheless continue in full force and effect.
11. Assignment. Neither the rights nor the obligations of any party to this Agreement may be transferred or assigned, except by the express written agreement of the parties hereto. Any purported assignment of this Agreement shall be null, void and of no effect.
12. Termination. This Escrow Agreement shall terminate upon the complete distribution of the Escrow Funds, the IR Cash and the IR Warrants in accordance with the terms hereof. If any Escrow Funds are subject to a dispute under Section 6(l), this Escrow Agreement shall remain in full force and effect until such dispute is resolved in accordance with such Section 6(l).
13. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective representatives, successors and permitted assigns.
* * * * *
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed on the date and year first written above.
THE COMPANY:
VLOV, INC.
By: _____________________________
Name: Qingqing Wu
Title: Chief Executive Officer
THE PLACEMENT AGENT:
GILFORD SECURITIES INCORPORATED
By: _____________________________
Name: Robert Maley
Title: President
THE ESCROW MANAGER:
CORPORATE STOCK TRANSFER, INC.
By: _______________________________
Name: Carylyn Bell
Title: President
BANK ESCROW AGENT:
UNITED WESTERN BANK
By: _______________________________
Name: _______________________________
Title: _______________________________