MAKE GOOD SECURITIES ESCROW
AGREEMENT
THIS
MAKE GOOD SECURITIES ESCROW AGREEMENT (the “ Make Good
Agreement ”), dated as of October 7, 2009, is entered
into by and among Orient Paper, Inc., a Nevada corporation (the
“ Company ”), the investors listed on the
Schedule of Buyers in the Securities Purchase Agreement dated
October 7 , 2009 (the “ Buyers ”),
Zhenyong Liu (the “ Principal Shareholder ”) and
Sichenzia Ross Friedman Ference LLP with an address at 61 Broadway,
32 nd Floor, New York, NY 10006 (the “ Escrow
Agent ”).
Capitalized
terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement (as defined below).
WITNESSETH:
WHEREAS,
the Buyers will be purchasing from the Company and the Company will
be selling to the Buyers an aggregate of 8,333,332 shares of the
Company’s common stock, par value $0.001 per share (“
Common Stock ”), for a total aggregate purchase price
of approximately $5,000,000 in a private placement financing
transaction (the “ Financing Transaction ”)
pursuant to a Securities Purchase Agreement dated as of the date
hereof (the “ Closing Date ”) by and among the
Company and the Buyers (the “ Securities Purchase
Agreement ”);
WHEREAS,
as an inducement to the Buyers to enter into the Securities
Purchase Agreement, the Principal Shareholder has agreed to place
the Escrow Shares (as hereinafter defined) into escrow for the
benefit of the Buyers in the event the Company fails to achieve the
following financial performance thresholds for the 12-month periods
ended December 31, 2009 (“ 2009 ”) and December
31, 2020 (“ 2010 ”):
(a)
In 2009, Net Income, as defined in accordance with United States
generally accepted accounting principles (“ US GAAP
”) and reported by the Company in its audited financial
statements for 2009 (the “ 2009 financial statements
”) equals or exceeds $10,000,000 (the “ 2009
Performance Threshold ”);
(b)
In 2010, Net Income, as defined in accordance with US GAAP and
reported by the Company in its audited financial statements for
2010 (the “ 2010 financial statements ”) exceeds
$18,000,000 (the “ 2009 Performance Threshold
”); and
WHEREAS,
the Company, the Buyers and the Principal Shareholder have
requested that the Escrow Agent hold the 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 with the
Escrow Agent whereby the Escrow Agent shall hold the Escrow Shares
as contemplated by this Agreement.
1.2.
Upon the execution of this Agreement, the Escrow Agent shall open a
brokerage account with JP Morgan Chase Bank, N.A. (the
“Escrow Agent Custody Account”) whereupon the Principal
Shareholder shall deposit or cause to be deposited at
least 3,000,000 shares of Common Stock (“ Escrow
Shares ”) into the Escrow Agent Custody Account within
seven (7) days thereof. The Escrow Agent Custody Account shall be
in the sole name of the Escrow Agent and only the Escrow Agent
shall have sole authority to transact the shares placed therein. In
the event that the Principal Shareholder deposits shares in excess
of 3,000,000 shares of Common Stock into the Escrow Agent Custody
Account, the parties agree and hereby irrevocably authorize the
Escrow Agent to transfer such excess shares back to the Principal
Shareholder’s brokerage account upon instructions from the
Principal Shareholder without requiring further authorization or
approval from the Company and the Buyers. For the avoidance of any
doubt, the Escrow Agent shall not be responsible for procuring the
deposit of Escrow Shares.
All
parties agree to indemnify and hold harmless JPMorgan Chase Bank,
N.A. and its Affiliates, employees, and representatives from any
and all claims, liabilities, costs or expenses in any way arising
from or relating to their duties or performance as instructed by
the Escrow Agent, other than those which have resulted from the
gross negligence, fraud or willful misconduct of JP Morgan Chase
Bank, N.A.
1.3.
The Company will provide the Buyers with (i) the Company’s
audited financial statements for 2009, prepared in accordance with
US GAAP, on or before March 31, 2010 and (ii) the Company’s
audited financial statements for 2010, prepared in accordance with
US GAAP, on or before March 31, 2011, so as to allow the Buyers the
opportunity to evaluate whether the 2009 Performance Threshold and
the 2010 Performance Threshold were attained. In the event that any
Buyer receives the financial information prior to its dissemination
by the Company in either a press release or in the Company’s
SEC Documents, the Company shall issue a press release announcing
the information or file a Form 8-K within one trading day of a
request by the Buyer to make such information public.
1.4.
The parties hereby agree that the Escrow Shares shall be delivered
to the Buyers as set forth below:
(i) If Net Income for 2009 shall be at least ten per cent (10%)
less than the 2009 Performance Threshold, then (x) the 2009 Escrow
Shares (defined below) shall be distributed on a pro rata basis to
the Buyers based on the number of shares of Common Stock purchased
by each Buyer pursuant to the Securities Purchase Agreement, and
(y) within five (5)business days after March 31, 2010, the Company
shall provide written instructions to the Escrow Agent instructing
the Escrow Agent to issue and deliver the 2009 Escrow Shares to
each Buyer on a pro rata basis based on the number
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of
shares of Common Stock purchased by that Buyer pursuant to the
Securities Purchase Agreement, and shall provide a copy of such
instructions to each Buyer. “ 2009 Escrow Shares
” shall be number of Escrow Shares equivalent to the
percentage by which the Company missed the 2009 Performance
Threshold. For example, if the Company were to miss the 2009
Performance Threshold by 15%, the 2009 Escrow Shares shall comprise
450,000 shares of Common Stock. For the avoidance of any doubt, no
2009 Escrow Shares shall be transferred to any Buyer in the event
the Company misses the 2009 Performance Threshold by less than
10%.
(ii) If Net Income for 2010 shall be at least ten per cent (10%)
less than the 2010 Performance Threshold, then (x) the 2010 Escrow
Shares (defined below) shall be distributed on a pro rata basis to
the Buyers based on the number of shares of Common Stock purchased
by each Buyer pursuant to the Securities Purchase Agreement, and
(y) within five (5)business days after March 31, 2011, the Company
shall provide written instructions to the Escrow Agent instructing
the Escrow Agent to issue and deliver the 2010 Escrow Shares to
each Buyer on a pro rata basis based on the number of shares of
Common Stock purchased by that Buyer pursuant to the Securities
Purchase Agreement, and shall provide a copy of such instructions
to each Buyer. “ 2010 Escrow Shares ” shall be
the number of Escrow Shares equivalent to the percentage by which
the Company missed the 2010 Performance Threshold. For example, if
the Company were to miss the 2010 Performance Threshold by 25%, the
2010 Escrow Shares shall comprise 750,000 shares of Common Stock.
For the avoidance of any doubt, no 2010 Escrow Shares shall be
transferred to any Buyer in the event the Company misses the 2010
Performance Threshold by less than 10%.
1.5
In the event 2009 Escrow Shares are delivered to the Buyers, the
Principal Shareholder shall forthwith deposit in Escrow Agent
Custody Account, such additional number of shares of Common Stock
so as to ensure that the Escrow Shares shall amount to at least
3,000,000 shares of Common Stock.
1.6
The parties hereby agree that in determining the 2009 Performance
Threshold and the 2010 Performance Threshold, the parties shall
not take into account (and such amounts shall not be
included in determining Net Income):
(i)
the offering and transactional costs associated with the Financing
Transaction, including without limitation, legal and audit costs,
registration and filing fees;
(ii)
losses the Company has suffered or reasonably calculated to have
suffered as a result of a force majeure event, which shall mean (i)
acts of God (ii) outbreak of hostilities, riots, civil
disturbances, acts of terrorisms, (iii) the act of any government
or authority (including refusal or revocation of any license or
consent), (iv) fire, explosion, flood, or bad weather, (v) power
failure, failure of telecommunications lines, failure or breakdown
of plant, machinery or vehicles, (vi) default of suppliers or
sub-contractors, (vii) theft, malicious damage, strike, lock-out or
industrial action of any kind and (vii) any cause or circumstance
whatsoever beyond the Company’s reasonable
control;
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(iii)
any compensation expense incurred by the Company in connection with
the release of any Escrow Shares to the Principal
Shareholder;
(iv)
the effects of EITF 07-5; and
(v)
the costs and expense incurred by the Company in 2009 and incurred
in 2019 in establishing an employee stock option plan pursuant to
Section 4(p) of the Securities Purchase Agreement and granting
stock options to its employees thereunder.
1.7
If the Company does not achieve either the 2009 Performance
Threshold or the 2010 Performance Threshold, the Company shall use
its commercially reasonable efforts to promptly cause the 2009
Escrow Shares or the 2010 Escr
