ESCROW AGREEMENT

 

This ESCROW AGREEMENT (this “ Agreement ”) made as of   June 11, 2008 by and between China Advanced Construction Materials Group, Inc. (the “ Issuer ”) and Maxim Group LLC (the “ Placement Agent ”), whose addresses and other information appear on the Information Sheet (as defined herein) attached to this Agreement, and American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038 (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, 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, the Issuer and the Placement Agent propose to establish an escrow account (the “ Escrow Account ”), to which subscription monies which are received by the Escrow Agent from the Placement Agent or the Issuer in connection with such private offering are to be credited, and the Escrow Agent is willing to establish the Escrow Account on the terms and subject to the conditions hereinafter set forth;

 

WHEREAS, the Escrow Agent has an agreement with JP Morgan Chase Bank (the “ Bank ”) to establish a special bank account into which the subscription monies, which are received by the Escrow Agent and credited to the Escrow Account, are to be deposited;

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto hereby agree as follows:

 

1.   Information Sheet . Each capitalized term not otherwise defined in this Agreement shall have the meaning set forth for such term on the information sheet which is attached to this Agreement as Exhibit A and is incorporated by reference herein and made a part hereof (the “ Information Sheet ”).

 

2.   Establishment of the Bank Account .

 

2.1   The Escrow Agent shall establish a non-interest-bearing bank account at the branch of the Bank selected by the Escrow Agent, and bearing the designation set forth on the Information Sheet ( heretofore defined as the “ Bank Account ”). The purpose of the Bank Account is for (a) the deposit of all subscription monies (checks or wire transfers) which are received from prospective purchasers of the Units and are delivered to the Escrow Agent, (b) the holding of amounts of subscription monies which are collected through the banking system, and (c) the disbursement of collected funds, all as described herein.

2.2   On or before the date of the initial deposit in the Bank Account pursuant to this Agreement, the Placement Agent shall notify the Escrow Agent of the date of the commencement of the Offering (the “ Effective Date ”), and the Escrow Agent shall not be required to accept any amounts for credit to the Escrow Account or for deposit in the Bank Account prior to its receipt of such notification.

 

2.3   The “ Offering Period ,” which shall be deemed to commence on the Effective Date, shall consist of the number of calendar days or business days set forth on the Information Sheet. The Offering Period shall be extended at the mutual discretion of both the Company and the Placement Agent (an “ Extension Period ”) only if the Escrow Agent shall have received notice thereof prior to the expiration of the Offering Period. The Extension Period, which shall be deemed to commence on the next calendar day following the expiration of the Offering Period, shall consist of the number of calendar days or business days set forth on the Information Sheet. The last day of the Offering Period, or the last day of the Extension Period (if the Escrow Agent has received written notice thereof as herein above provided), is referred to herein as the “ Termination Date. ” Except as provided in Section 4.3 hereof, after the Termination Date, the Placement Agent shall not deposit, and the Escrow Agent shall not accept, any additional amounts representing payments by prospective purchasers.

 

3.   Deposits to the Bank Account .

 

3.1   The Placement Agent shall promptly deliver to the Escrow Agent all monies which it receives fro m prospective purchasers of the Securities, which monies shall be in the form of checks , or wire transfers, provided , however , that “Cashiers” checks and “Money Orders” must be in amounts greater than $10,000; Cashiers checks or Money Orders in amounts less than $10,000 shall be rejected by the Escrow Agent. Upon the Escrow Agent’s receipt of such monies, same shall be credited to the Escrow Account. All checks delivered to the Escrow Agent shall be made payable to “ China Advanced Construction Materials Group Escrow Account .” Any check payable other than to the Escrow Agent as required hereby   shall be returned to the prospective purchaser, or if the Escrow Agent has insufficient information to do so, then to the Placement Agent (together with any subscription information or other documents delivered therewith) by noon of the next business day following receipt of such check by the Escrow Agent, and such check shall be deemed not to have been delivered to the Escrow Agent pursuant to the terms of this Agreement.

 

3.2   Promptly after receiving subscription monies as described in Section 3.1, the Escrow Agent shall deposit the same into the Bank Account. Amounts of monies so deposited are hereinafter referred to as “ Escrow Amounts .” The Escrow Agent shall cause the Bank to process all Escrow Amounts for collection through the banking system.

 

3.3   The Escrow Agent shall not be required to accept for credit to the Escrow Account or for deposit into the Bank Account checks or wires that are not accompanied by the appropriate subscription information.

 

3.4   The Escrow Agent shall not be required to accept in the Escrow Account any amounts representing payments by prospective purchasers, whether by check or wire, except during the Escrow Agent's regular business hours.

3.5   Those Escrow Amounts which have been deposited in the Bank Account and which have cleared the banking system and have been collected by the Escrow Agent are herein referred to as the “ Fund .”

 

3.6   If the Offering is terminated before the Termination Date, the Escrow Agent shall refund any portion of the Fund prior to disbursement of the Fund in accordance with Article 4 hereof upon instructions in writing signed by the Issuer and the Placement Agent.

 

3.7   If prior to the disbursement of the Fund in accordance with Section 4.2 below, the Escrow Agent has received notice from the Issuer that the subscription of a purchaser has been rejected since such purchaser does not qualify as an investor in the Offering, the Escrow Agent shall promptly refund to such purchaser the amount of payment received from such purchaser which is then held in the Fund or which thereafter clears the banking system, without interest thereon or deduction therefrom, by drawing a check on the Bank Account for the amount of such payment and transmitting it to the purchaser.

 

4.   Disbursement from the Bank Account .

 

4.1   Subject to Section 4.3 below, if the Offering is terminated before the Termination Date by the Issuer, the Escrow Agent shall, upon its receipt of written instructions signed by both the Issuer and the Placement Agent, refund to each prospective subscriber the aggregate amount of the payment from said subscriber then held in the Fund or which thereafter clears the banking system, without interest thereon or deduction therefrom.

 

4.2   Subject to Section 4.3 below, if at any time up to the close of regular banking hours on the Termination Date, the Escrow Agent has received joint written instructions from the Issuer and the Placement Agent that all conditions for release of funds and the issuance of Securities have been met for closing, the Escrow Agent shall promptly disburse the Fund in accordance with such instructions; the parties hereto acknowledge and agree that there will only be one closing of the Offering prior to the Termination Date.

 

4.3   Upon disbursement of all amounts in the Fund pursuant to the terms of this Article 4, the Escrow Agent shall be relieved of further obligations and released from all liability under this Agreement with respect to the Escrow Account. It is expressly agreed and understood that in no event shall the aggregate amount of payments made by the Escrow Agent exceed the amount of the Fund.

 

5.   Rights, Duties and Responsibilities of Escrow Agent . It is understood and agreed that the duties of the Escrow Agent are purely ministerial in nature, and that:

 

5.1   The Escrow Agent shall notify the Placement Agent, on a daily basis, of the Escrow Amounts which have been deposited in the Bank Account and of the amounts, constituting the Fund, which have cleared the banking system and have been collected by the Escrow Agent.

 

5.2   The Escrow Agent shall not be responsible for or be required to enforce any of the terms or conditions of the subscription agreement or any other agreement between the Placement Agent and the Issuer and any prospective purchaser nor shall the Escrow Agent be responsible for the performance by the Issuer of its obligations under this Agreement.

5.3   The Escrow Agent shall not be required to accept from the Placement Agent or the Issuer any subscription information pertaining to prospective purchasers unless such subscription information is accompanied by checks or wire transfers meeting the requirements of Section 3.1, nor shall the Escrow Agent be required to keep records of any information with respect to payments deposited by the Placement Agent or the Issuer except as to the amount and date of such payments; however, the Escrow Agent shall notify the Placement Agent or the Issuer within a reasonable time of any discrepancy between the amount set forth in any subscription information and the amount delivered to the Escrow Agent therewith. Such amount need not be accepted for deposit in the Escrow Account until such discrepancy has been resolved.

 

5.4   The Escrow Agent shall be under no duty or responsibility to enforce collection of any check delivered to it hereunder. The Escrow Agent, within a reasonable time, shall return to the Placement Agent any check received which is dishonored, together with the subscription information, if any, which accompanied such check.

 

5.5   The Escrow Agent shall be entitled to rely upon the accuracy, act in reliance upon the contents, and assume the genuineness of any notice, instruction, certificate, signature, instrument or other document which is given to the Escrow Agent pursuant to this Agreement without the necessity of the Escrow Agent verifying the truth or accuracy thereof. The Escrow Agent shall not be obligated to make any inquiry as to the authority, capacity, existence or identity of any person purporting to give any such notice or instructions or to execute any such certificate, instrument or other document.

 

5.6   If the Escrow Agent is uncertain as to its duties or rights hereunder or shall receive instructions with respect to the Bank Account, the Escrow Amounts or the Fund which, in its sole determination, are in conflict either with other instructions received by it or with any provision of this Agreement, it shall be entitled to hold the Escrow Amounts, the Fund, or a portion thereof, in the Bank Account pending the resolution of such uncertainty to the Escrow Agent’s sole satisfaction, by final judgment of a court or courts of competent jurisdiction or otherwise.

 

5.7   The Escrow Agent shall not be liable for any action taken or omitted hereunder, or for the misconduct of any employee, agent or attorney appointed by it, except in the case of willful misconduct or gross negligence. The Escrow Agent shall be entitled to consult with counsel of its own choosing and shall not be liable for any action taken, suffered or omitted by it in accordance with the advice of such counsel, except in the case of willful misconduct or gross negligence on the part of Escrow Agent.

 

5.8   The Escrow Agent shall have no responsibility at any time to ascertain whether or not any security interest exists in the Escrow Amounts, the Fund or any part thereof or to file any financing statement under the Uniform Commercial Code with respect to the Fund or any part thereof.

 

 

6.   Amendment: Resignation . This Agreement may be altered or amended only with the written consent of the Issuer, the Placement Agent and the Escrow Agent. The Escrow Agent may resign for any reason upon five (5) business days' written notice to the Issuer and the Placement Agent. Should the Escrow Agent resign as herein provided, it shall not be required to accept any deposit, make any disbursement or otherwise dispose of the Escrow Amounts or the Fund, but its only duty shall be to hold the Escrow Amounts until they clear the banking system and the Fund for a period of not more than five (5) business days following the effective date of such resignation, at which time (a) if a successor escrow agent shall have been appointed and written notice thereof (including the name and address of such successor escrow agent) shall have been given to the resigning Escrow Agent by the Issuer or the Placement Agent and such successor escrow agent, then the resigning Escrow Agent shall deliver over to the successor escrow agent the Fund, less any portion thereof previously paid out in accordance with this Agreement; or (b) if the resigning Escrow Agent shall not have received written notice signed by the Issuer or the Placement Agent, and a successor escrow agent, then the resigning Escrow Agent shall promptly refund the amount in the Fund to each prospective purchaser, without interest thereon or deduction therefrom, and the resigning Escrow Agent shall promptly notify the Issuer and the Placement Agent in writing of its liquidation and distribution of the Fund; whereupon, in either case, the Escrow Agent shall be relieved of all further obligations and released from all liability under this Agreement.

 

7.   Representations and Warranties . The Issuer and the Placement Agent hereby severally represent and warrant to the Escrow Agent that:

 

7.1   No party other than the parties hereto and the prospective purchasers have, or shall have, any lien, claim or security interest in the Escrow Amounts or the Fund or any part thereof.

 

7.2   No financing statement under the Uniform Commercial Code is on file in any jurisdiction claiming a security interest in or describing (whether specifically or generally) the Escrow Amounts or the Fund or any part thereof.

 

7.3   The subscription information submitted with each deposit shall, at the time of submission and at the time of the disbursement of the Fund, be deemed a representation and warranty that such deposit represents a bona fide payment by the purchaser described therein for the amount of Securities set forth in such subscription information.

 

7.4   All of the information contained in the Information Sheet is, as of the date hereof, and will be, at the time of any disbursement of the Fund, true and correct.

 

8.   Fees and Expenses . The Escrow Agent shall be entitled to the Escrow Agent Fees set forth on the Information Sheet, payable by the Issuer as and when stated therein. In addition, the Issuer agrees to reimburse the Escrow Agent for any reasonable expenses incurred in connection with this Agreement, including, but not limited to, reasonable counsel fees of one counsel. The Escrow Agent confirms that no additional expenses shall be incurred absent extraordinary conditions.

 

9.   Indemnification and Contribution .

 

9.1   The Issuer and the Placement Agent (collectively referred to as the “ Indemnitors ”) jointly and severally agree to indemnify the Escrow Agent and its officers, directors, employees, agents and shareholders (collectively referred to as the “ Indemnitees ”) against, and hold them harmless of and from, any and all loss, liability, cost, damage and expense, including without limitation, reasonable counsel fees, which the Indemnitees may suffer or incur by reason of any action, claim or proceeding brought against the Indemnitees arising out of or relating in any way to this Agreement or any transaction to which this Agreement relates, unless such action, claim or proceeding is the result of the willful misconduct or gross negligence   of any   of the Indemnitees.

 

9.2   If the indemnification provided for in Section 9.1 is applicable, but for any reason is held to be unavailable, the Indemnitors shall contribute such amounts as are just and equitable to pay, or to reimburse the Indemnitees for, the aggregate of any and all losses, liabilities, costs, damages and expenses, including reasonable counsel fees, actually incurred by the Indemnitees as a result of or in connection with, and any amount paid in settlement of, any action, claim or proceeding arising out of or relating in any way to any actions or omissions of the Indemnitors.

 

9.3   The provisions of this Section 9 shall survive any termination of this Agreement, whether by disbursement of the Fund, resignation of the Escrow Agent or otherwise.

 

10.   Governing Law and Assignment . This Agreement shall be construed in accordance with and governed by the laws of the State of New York and shall be binding upon the parties hereto and their respective successors and assigns; provided , however , that any assignment or transfer by any party of its rights under this Agreement or with respect to the Escrow Amounts or the Fund shall be void as against the Escrow Agent unless (a) written notice thereof shall be given to the Escrow Agent; and (b) the Escrow Agent shall have consented in writing to such assignment or transfer.

 

11.   Notices . All notices required to be given in connection with this Agreement shall be sent by registered or certified mail, return receipt requested, or by hand delivery with receipt acknowledged, or by the Express Mail service offered by the United States Postal Service, or by overnight courier, and addressed, if to the Issuer or the Placement Agent, at their respective addresses set forth on the Information Sheet, and if to the Escrow Agent, at its address set forth above.

 

12.   Severability . If any provision of this Agreement or the application thereof to any person or circumstance shall be determined to be invalid or unenforceable, the remaining provisions of this Agreement or the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law.

 

13.   Execution in Several Counterparts . This Agreement may be executed in several counterparts or by separate instruments, and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.

 

14.   Entire Agreement . This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings (written or oral) of the parties in connection therewith.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written.

 

	AMERICAN STOCK TRANSFER & TRUST COMPANY
	By:	/s/ Herbert J. Lemmer
		Name: Herbert J. Lemmer
		Title:  Vice President
	CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
	By:	/s/ Xianfu Han
		Name: Xianfu Han
		Title:  Chief Executive Officer
	MAXIM GROUP LLC
	By:	/s/ Clifford A. Teller
		Name: Clifford A. Teller
		Title:  Director of Investment Banking

 

State of incorporation of organization: Delaware

2.	The Placement Agent
	Name:	Maxim Group LLC
	Address:	405 Lexington Avenue
		New York, New York 10174

3.            The Securities

 

Description of the securities to be offered: 875,000 Units (each consists of one share of the Company’s Series A Convertible Preferred Stock and one warrant to purchase two (2) shares of the Company’s Common Stock) to accredited investors only, on a “best efforts” basis, at a purchase price of $8.00 per unit. The warrants will expire in five years and have an exercise price of $2.40.

 

4.            Minimum Amounts and Conditions Required for Disbursement of the Escrow Account

 

Aggregate dollar amount that must be collected before the Escrow Account may be disbursed to the Issuer: There is no minimum.

5.            Plan of Distribution of the Securities :

 

Initial Offering Period: Through June 15, 2008

Extension Period: Up to June 30, 2008

 

6.             Title of Escrow Account

 

“China Advanced Construction Materials Group Escrow Account”

7.             Account Number

8.            Escrow Agent Fees and Charges

 

$2,500: payable at the Closing

 

 

  SECURITIES ESCROW AGREEMENT

This Escrow Agreement (the “ Agreement ”), dated as of June 11, 2008, is entered into by and among China Advanced Construction Materials Group, Inc., a Delaware corporation (the “ Company ”), the individual signatories hereto on Schedule A (each an “ Investor ” and collectively, the “ Investors ”), Professional Offshore Opportunity Fund, L td. , as representative of the Investors (the “ Investor Representative ”), Xianfu Han and Weili He (collectively, the “ Stockholders ”) and American Stock Transfer & Trust Company (hereinafter referred to as the “ Escrow Agent ”). All capitalized terms used but not defined herein shall have the meanings assigned them in the Subscription Agreement, between the Company and each Investor in the Offering.

BACKGROUND

The Company is selling investment units (“ Units ”), each consisting of (i) one share of the Company’s Series A Convertible Preferred Stock, par value $.001 per share, each share of which will be convertible into four (4) shares of the Company’s Common Stock, par value $.001 per share (the “ Common Stock ”) and (ii) a warrant to purchase two (2) shares of Common Stock, par value $.001 per share. As an inducement to the Investors to enter into the Subscription Agreement, the Stockholders have agreed to place the Escrow Shares (as defined below) into escrow for the benefit of the Investors in the event the Company fails to satisfy the Performance Thresholds (as defined below). Pursuant to the terms of the Offering, as described in the Company’s Private Placement Memorandum (“ PPM ”) dated March 17, 2008, as amended on April 11, 2008, May 21, 2008 and May 28, 2008 and in the Consent to Modification and Amendment Agreement of the PPM dated as of the date hereof , the Company, the Stockholders and the Investor Representative have agreed to establish an escrow account (the “ Escrow Account ” 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.

AGREEMENT

NOW, THEREFORE , in consideration of the mutual promises of the parties and the terms and conditions hereof, the parties hereby agree as follows:

 

1.   Appointment of Investor Representative . The Investors hereby appoint the Investor Representative to act on their collective behalf with respect to all matters within the scope of this agreement, and the Investor Representative hereby accepts such appointment. All decisions of the Investor Representative with respect to the subject matter of this Agreement shall be binding on the Investors absent fraud or willful misconduct.

 

2.   Appointment of Escrow Agent . The Investor Representative on behalf of the Investors, the Stockholders and the Company hereby appoint American Stock Transfer & Trust Company 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 Escrow Account on the terms and subject to the conditions hereinafter set forth.

 

3.   Establishment of Escrow . Upon the execution of this Agreement, the Stockholders shall deliver to the Escrow Agent stock certificates evidencing 3,500,000 shares in the aggregate of the Company’s Common Stock, which shares shall be transferred into the name of the Escrow Agent (collectively, the “ Escrow Shares ”) along with stock powers executed in blank. Notwithstanding the foregoing transfer, the Stockholders shall have the right to vote the Escrow Shares until such time as they are eligible for transfer to the Investors pursuant to the terms of this Agreement. The Company shall take all steps to assure that the Escrow Shares are transferred on the books and records of the Company into the name of the Escrow Agent.

 

4.   Representations of the Stockholders . The Stockholders hereby represent and warrant to the Investors and the Investor Representative as follows:

 

4.1   The Escrow Shares are validly issued, fully paid and nonassessable shares of the Company. The Stockholders are the record and beneficial owners of the Escrow Shares and have good title to the Escrow Shares, free and clear of all pledges, liens, claims and encumbrances, except encumbrances created by this Agreement and the Lock-Up Agreements entered into with the Stockholders, and the Escrow Agent shall hereafter have good record title to such shares. There are no restrictions on the ability of the Stockholders to transfer the Escrow Shares to the Escrow Agent or for the Escrow Agent to transfer the Escrow Shares to the Investors, except as stated herein. There are no restrictions on the ability of the Stockholders enter into this Agreement other than transfer restrictions under applicable federal and state securities laws. Upon any delivery of Escrow Shares to the Investors hereunder, the Investors will acquire good and valid title to the Escrow Shares, free and clear of any pledges, liens, claims and encumbrances.

 

4.2   The performance of this Agreement and compliance with the provisions hereof will not violate any provision of any applicable law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any of the properties or assets of the Stockholders pursuant to the terms of the certificate of incorporation or by-laws of the Company or any indenture, mortgage, deed of trust or other agreement or instrument binding upon the Stockholders or affecting the Escrow Shares. No notice to, filing with, or authorization, registration, consent or approval of any governmental authority or other person is necessary for the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby by the Stockholders.

 

5.   Disbursement of Escrow Shares .

 

5.1   For purposes of this Agreement, “Net Income” means net income as defined under United States generally accepted accounting principles (“ GAAP ”), consistently applied, for the Company, except that there shall be assumed each year that there are dividends payable on each share of outstanding Series A Preferred Stock at the annual rate of nine percent ( 9% ) (which amount of dividends, to the extent paid by the Company, shall be added back (if and to the extent previously subtracted in the calculation of Net Income in accordance with GAAP) to Net Income prior to determining if the Performance Thresholds (defined below) have been satisfied) and that , other than in the fiscal year (“ FY08 ”) ending June 30, 2008 for which Net Income shall be calculated on a pre-tax basis, the Company’s income is subject to tax at an assumed twenty-five percent ( 25% ) rate, and provided, however, that the Company’s Net Income shall be increased by any non-cash charges incurred as a result of the Offering (due to non-cash amortization on warrants and loss from change in fair value of the Warrants charged to the Company’s results of operation, if any, and if and to the extent previously subtracted in the calculation of Net Income in accordance with GAAP). The Company’s Net Income for FY08 and fiscal year (“ FY09 ”) ending June 30, 2009 shall also be increased by any cash and non-cash charges related to the share exchange agreement dated April 29, 2008, by and among the Company, Xin Ao Construction Materials, Inc., a company incorporated under the laws of the British Virgin Islands (“ BVI-ACM ”), and each of the shareholders of BVI-ACM, and this Offering, including but not limited to the following: attorney’s fees, professional fees, consulting fees, edgar filing fees, auditing fees and any liquidated damages pursuant to Section 7.1 of the Subscription Agreements.

 

5.2   The Company has established the following financial performance thresholds (collectively, the “ Performance Thresholds ”): (i) $5,200,000 of Net Income (calculated on a pre-tax basis solely with respect to FY08) for FY08 (the “ FY08 Threshold ”), (ii) $9,000,000 of Net Income for FY09 (the “ FY09 Threshold ”) and (iii) Net Income equal to or greater than the Company’s Net Income for the fiscal year ending June 30, 2009, for the fiscal year (“ FY10 ”) ending June 30, 2010 (the “ FY10 Threshold ”). The Company will provide the Investor Representative with its audited financial statements for FY08, FY09 and FY10, prepared in accordance with US GAAP, consistently applied with its financial statements for the fiscal year ending June 30, 2007, on or before September 30, 2008, September 30, 2009 and September 30, 2010, respectively (the “ Due Date ”), along with a certification from the Company’s Chief Financial Officer calculating Net Income for such year as provided above, and a letter from the Company’s auditors confirming the accuracy of the CFO’s calculation, so as to allow the Investor Representative the opportunity to evaluate whether the Performance Threshold has been attained each year.

 

5.3   If the Company’s Net Income (as calculated pursuant to Section 5.1 above) for any one of FY08, FY09 or FY10 is less than 100% of the applicable Performance Threshold, respectively, then the Performance Threshold will be deemed not to have been achieved and all of the Escrow Shares shall be forfeited by the Shareholders and delivered by the Escrow Agent to the Investors (pro rata based on the number of Units purchased by each Investor in the Offering as shown on Exhibit A). The Investor Representative shall provide written instructions to the Escrow Agent, with copies to the Company and the Stockholders, instructing the Escrow Agent to deliver to the Investors, at the addresses set forth on Exhibit A, within ten (10) business days following delivery of the Investor Representative’s notice pursuant to this Section 5.3 , certificates registered in the name of each Investor, subject to Section 5.6 below and provided that the Escrow Agent has received such certificates from the Company’s transfer agent, evidencing the Investor’s pro rata portion of the Escrow Shares, and the Escrow Agent shall make such delivery to the Investors if no objection is received from the Stockholders.

 

5.4   If the Escrow Shares remain in the Escrow Account after the Investor Representative has had the opportunity to evaluate whether or not the Company has attained the FY10 Performance Threshold, then all of the Escrow Shares remaining in the Escrow Account shall be delivered to the Stockholders, in proportion to the amount contributed by each, and the Investor Representative shall provide written instructions to the Escrow Agent instructing the Escrow Agent to deliver the Escrow Shares to the Stockholders within ten (10) business days following delivery of the financial statements for FY10 to the Investor Representative.

 

5.5   In the event that any Escrow Shares are to be delivered to the Investors pursuant to this Section 5 , the Company shall use best efforts to promptly cause the Escrow Shares to be delivered to the Investors, including causing its transfer agent promptly to issue the certificates in the names of the Investors and causing its securities counsel to provide any written instruction required by its transfer agent or the Escrow Agent in a timely manner so that the issuances and delivery contemplated above can be achieved within ten (10) business days following delivery of the applicable financial statements to the Investor Representative and so that the Escrow Shares can be delivered without restrictive legend so long as six (6) months have passed since the date of this Agreement.

 

5.6   Notwithstanding anything to the contrary herein, those Investors that became holders of Preferred Stock pursuant to the Offering shall be entitled to their pro rata portion of the Escrow Shares at the time of any distribution of Escrow Shares, regardless of whether they have subsequently transferred their Preferred Stock; provided, however, if an Investor has entered into a written agreement evidencing such Investor’s transfer and assignment of all its rights and obligations under this Agreement, and has provided written notice to the Company and the Escrow Agent of such transfer in accordance with Section 14 below (a “ Notice of Transfer ”), then in the event that any Escrow Shares are to be delivered to the Investors in accordance with this Section 5 , the Company shall direct its transfer agent to issue the certificates in the names of the transferee(s) and the Escrow Shares shall be delivered by the Escrow Agent to the transferee(s) as set forth in the Investor’s Notice of Transfer.

 

6.   Investment Intent; Limited Transferability of Escrow Shares .

 

6.1   By accepting the Escrow Shares, each Investor represents to the Company that it understands that the Escrow Shares have not been registered for sale under Federal or state securities laws and are being delivered to the Investor pursuant to one or more exemptions from the registration requirements of such securities laws. Each Investor understands that it must bear the economic risk of its investment the Escrow Shares and hold such securities for an indefinite period of time, as such securities have not been registered under Federal or state securities laws and therefore cannot be sold unless subsequently registered under such laws, unless an exemption from such registration is available. Each Investor further represents to the Company, by accepting the Escrow Shares, that it has full power and authority to accept the Escrow Shares and make the representations set forth herein.

 

6.2   Each Investor, by its acceptance of the Escrow Shares, represents to the Company that it is acquiring the Escrow Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the “ Act ”). Each Investor agrees, by acceptance of the Escrow Shares, that such shares will not be sold or otherwise transferred unless (i) a registration statement with respect to such transfer is effective under the Act and any applicable state securities laws or (ii) such sale or transfer is made pursuant to one or more exemptions from the Act.

 

6.3   Each Investor, by its acceptance of the Escrow Shares, acknowledges that the Escrow Shares may not be sold, transferred, assigned or hypothecated by the Investor except in compliance with the provisions of the Act and the applicable state securities “blue sky” laws, and is so transferable only upon the books of the Company which it shall cause to be maintained for such purpose.

 

7.   Duration . This Agreement shall terminate on the distribution of all the Escrow Shares in accordance with Section 5 above.

 

8.   Interpleader . Should any controversy arise among the parties hereto with respect to this Agreement or with respect to the right to receive the Escrow Shares, 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 8 shall be filed in any court of competent jurisdiction in New York, New York, and the Escrow Shares 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 Shares.

 

9.   Exculpation and Indemnification of Escrow Agent .

 

9.1   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.

 

9.2   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.

 

9.3   The Escrow Agent will be indemnified and held harmless, jointly and severally, by the Company and the Stockholders 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 9 shall survive the termination of this Agreement.

 

10.   Fees and Expenses . The Company will pay the Escrow Agent $_________ for all services rendered by the Escrow Agent hereunder. In addition, the Company agrees to reimburse the Escrow Agent for any reasonable expenses incurred in connection with this Agreement, including, but not limited to, reasonable counsel fees of one counsel.

 

11.   Resignation of Escrow Agent . At any time, upon ten (10) days’ written notice to the Company, 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 Company the Escrow Shares 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 Company shall have failed to appoint a successor escrow agent, the Escrow Agent may interplead the Escrow Shares into the registry of any court having jurisdiction.

 

12.   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.

 

13.   Registration Rights . If any Escrow Shares are distributed to the Investors hereunder, but counsel for the Company is unable to opine that the Escrow Shares may be delivered to the Investors free of restrictive legend, then the Investors shall have the right to participate in the registration rights granted to them in connection with their purchase of the Units pursuant to Article VII of the Subscription Agreement. By executing this Agreement, the Company agrees to comply with the provisions in Article VII of the Subscription Agreement. The Company shall also engage Counsel to timely provide the opinion required under this Section.

 

14.   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:

American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 10038

Attention: Herbert Lemmer

If to the Company or the Stockholders:  

China Advanced Construction Materials Group, Inc.

Yingu Plaza, 9 Beisihuanxi Road, Suite 1708

Haidian District, Beijing 100080

Attention : Xianfu Han, Chief Executive Officer

With a copy to:

Anslow + Jaclin, LLP

195 Route 9 South, Suite 204

Manalapan, NJ 07726

Attention: Richard Anslow, Esq.

If to the Investor Representative:  

Professional Offshore Opportunity Fund, Ltd.

1400 Old Country Road

Suite 206

Westbury, NY 11590

Attention: Howard B. Berger, 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.

 

15.   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.

 

16.   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 Shares 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.

 

17.   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 excusive jurisdiction and venue of those courts.

 

18.   Headings . The headings contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.

 

19.   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.

[ Signature Page Follows ]

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written.

 

AMERICAN STOCK TRANSFER & TRUST COMPANY
By:	/s/ Herbert J. Lemmer
	Name: Herbert J. Lemmer
	Title: Vice President
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
By:	/s/ Xianfu Han
	Name: Xianfu Han
	Title: Chief Executive Officer
PROFESSIONAL OFFSHORE OPPORTUNITY FUND, LTD.
By:	/s/ Howard Berger
	Name: Howard Berger
	Title: Manager
STOCKHOLDERS:
/s/ Xianfu Han
Xianfu Han, in his individual capacity
/s/ Weili He
Weili He, in his individual capacity

Exhibit A

 

Investor Signature Page

 

The undersigned hereby (i) agrees to the annexed Securities Escrow Agreement, (ii) consents to the appointment of the Investor Representative, and (iii) states that next to the undersigned’s name below is the number of Units purchased by the undersigned in _______ 2008 and the dollar amount invested by the undersigned .

 

Signature: ________________________________

Name: ___________________________________

Entity Name: ______________________________

Number of Units Purchased: __________________

Amount of Investment (in USD): _______________

Tax Id. No.: _______________________________

  THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAW. THIS WARRANT AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE PLEDGED, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE ACT.

 

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC .

 

Warrant for the Purchase of Shares of Common Stock

No. 2008-[ ]	_________ Shares

FOR VALUE RECEIVED, CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC., a Delaware corporation (the “ Company ”), hereby certifies that [________________], its designee or its permitted assigns is entitled to purchase from the Company, at any time or from time to time commencing on June 11, 2008 (the “ Issuance Date ”) and prior to 5:00 P.M., New York City time, on June 10, 2013 (the “ Exercise Period ”), [________________] fully paid and non-assessable shares of common stock, $0.001 par value per share, of the Company for a purchase price per share of $2.40. Hereinafter, (i) said common stock, $0.001 par value per share, of the Company, is referred to as the “ Common Stock ”; (ii) the shares of the Common Stock (subject to adjustment as set forth herein) purchasable hereunder or under any other Warrant (as hereinafter defined) are referred to as the “ Warrant Shares ”; (iii) the aggregate purchase price payable for the Warrant Shares purchasable hereunder is referred to as the “ Aggregate Warrant Price ”; (iv) the price payable (initially $2.40 per share subject to adjustment as set forth herein) for each of the Warrant Shares hereunder is referred to as the “ Per Share Warrant Price ”; (v) this Warrant, all similar Warrants issued on the date hereof and all warrants hereafter issued in exchange or substitution for this Warrant or such similar Warrants are referred to as the “ Warrants ”; (vi) the holder of this Warrant is referred to as the “ Holder ” and the holder of this Warrant and all other Warrants and Warrant Shares are referred to as the “ Holders ” and Holders of more than fifty percent (50%) of the Warrant Shares then issuable upon exercise of then outstanding Warrants are referred to as the “ Majority of the Holders ”) and (vii) the then Current Market Price per share of the Common Stock (the “ Current Market Price ” ) shall be deemed to be the last reported sale price of the Common Stock (as reported by Bloomberg Financial Markets) on the Trading Day (as defined below) immediately prior to such date or, in case no such reported sales take place on such day, the average of the last reported bid and ask prices of the Common Stock on such day, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, including the Nasdaq Global Select Market, the Nasdaq Global Market, and Nasdaq Capital Market (collectively “ NASDAQ ”), or other similar organization, or, if the Common Stock is not reported on a national securities exchange, the per share sale price for the Common Stock in the over-the-counter market as reported by the OTC Bulletin Board (the “ OTCBB ”) or another over-the-counter market, or if not so available, the fair market value of the Common Stock as determined in good faith by the Company’s Board of Directors. A “ Trading Day ” shall mean any day on which shares of the Company’s Common Stock are sold on the respective exchanges listed above. The Aggregate Warrant Price is not subject to adjustment.

 

 

This Warrant is one of the Warrants to purchase Common Stock issued pursuant to a Subscription Agreement (the “ Subscription Agreement ”) between the Company and the Subscriber named therein in connection with a private placement by the Company of Units, each consisting on one share of Series A Convertible Preferred Stock (the “ Preferred Stock ”) and one Warrant, as further described in the Company’s Private Placement Memorandum dated March 17, 2008, as amended on April 11, 2008, May 21, 2008 and May 28, 2008 and in the Consent to Modification and Amendment Agreement to the PPM dated as of the date hereof. By acceptance of this Warrant, the Holder agrees to comply with all applicable provisions of the Subscription Agreement.

 

1.	Exercise of Warrant .

 

(a)   Except as set forth in Section 1(d) below, this Warrant may be exercised in whole at any time, or in part from time to time, by the Holder during the Exercise Period by the surrender of this Warrant (with the exercise notice, in the form attached hereto (the “ Exercise Notice ”), duly executed) at the address set forth in Section 10(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part, with payment for the Warrant Shares made by certified or official bank check payable to the order of, or wire transfer of immediately available funds to, the Company; or

 

(b)   If this Warrant is exercised in part, this Warrant must be exercised for a number of whole shares of the Common Stock and the Holder is entitled to receive a new Warrant covering the Warrant Shares that have not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon surrender of this Warrant in connection with the exercise of this Warrant pursuant to the terms hereof, the Company will (i) issue a certificate or certificates in the name of the Holder for the largest number of whole shares of the Common Stock to which the Holder shall be entitled upon such exercise and, if this Warrant is exercised in whole, no fractional shares of Common Stock are to be issued, but rather the number of shares of Common Stock to which the Holder shall be entitled shall be rounded up to the nearest whole number, and (ii) deliver the other securities and properties receivable upon the exercise of this Warrant, or the proportionate part thereof, if this Warrant is exercised in part, pursuant to the provisions of this Warrant.

 

(c)   Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise this Warrant, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Warrant Price, and elect instead to receive upon such exercise the “ Net Number ” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):

 

Net Number = (A x B) - (A x C)

                                    B

 

 

For purposes of the foregoing formula:

 

A=

the total number of shares with respect to which this Warrant is then being exercised.

 

B=

the average of the Current Market Prices of the shares of Common Stock for the five Trading Days ending on the date immediately preceding the date of the written notice of exercise.

 

C=

the Per Share Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

(d)   Notwithstanding anything herein to the contrary, in no event shall the Holder have the right or be required to exercise this Warrant to the extent, and only to the extent, that as a result of such exercise, the aggregate number of shares of Common Stock beneficially owned by the Holder, its affiliates and any “group” (as defined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended and the rules promulgated thereunder (the “ Exchange Act ”)) of which the Holder may be deemed to be a party (collectively the “ Affiliates ”) would exceed 9.99% of the outstanding shares of the Common Stock immediately after giving effect to such exercise. For purposes of this Section, beneficial ownership shall be calculated in accordance with Sections 13(d) and Section 16(a) of the Exchange Act. The provisions of this Section 1(d) may be waived by a Holder as to itself (and solely as to itself) upon not less than sixty-five (65) days prior written notice to the Company. For purposes of this Warrant, in determining the number of outstanding shares of Common Stock, the Holder may rely upon the number of outstanding shares of Common Stock as reflected in the Company’s most recent annual or quarterly report on Form 10-K or Form 10-Q, respectively.

 

(e)   Upon exercise of this Warrant, the Company shall promptly (but in no event later than five (5) Trading Days after the date the Exercise Notice is delivered to the Company (the “ Exercise Date ”)) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder (together with such other transfer documentation as may be reasonably requested by the Company) and in such name or names as the Holder may designate (provided that, if the Registration Statement is not effective and the Holder directs the Company to deliver a certificate for the Warrant Shares in a name other than that of the Holder or an Affiliate of the Holder, it shall deliver to the Company on the Exercise Date an opinion of counsel reasonably satisfactory to the Company to the effect that the issuance of such Warrant Shares in such other name may be made pursuant to an available exemption from the registration requirements of the Act and all applicable state securities or blue sky laws), a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends, unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(b) under the Act. The Holder, or any person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date. If the Warrant Shares are to be issued free of all restrictive legends, the Company shall, upon the written request of the Holder, use its best efforts to deliver, or cause to be delivered, Warrant Shares hereunder electronically through The Depository Trust Company or another established clearing corporation performing similar functions, if available; provided, that, the Company may, but will not be required to, change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through such a clearing corporation.

 

 

(f)   If by the close of the fifth (5 ^th ) Trading Day after delivery of an Exercise Notice, the Company fails to deliver to the Holder a certificate representing the required number of Warrant Shares in the manner required pursuant to Section 1 , and if after such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s sole discretion, either (1) pay in cash to the Holder an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such Warrant Shares) shall terminate or (2) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of Warrant Shares, times (B) the closing bid price of a share of Common Stock on the date of exercise.

 

(g)   To the extent permitted by law, the Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

 

2.

Reservation of Warrant Shares; Listing . The Company agrees that, prior to the expiration of this Warrant, the Company shall at all times (a) have authorized and in reserve, and shall keep available, solely for issuance and delivery upon the exercise of this Warrant, one hundred twenty (120%) percent of the shares of the Common Stock receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer, other than under Federal or state securities laws, and free and clear of all preemptive rights and rights of first refusal and (b) if the Company hereafter lists its Common Stock on any national securities exchange, including NASDAQ, use its commercially reasonable efforts to keep the Warrant Shares authorized for listing on such exchange upon notice of issuance. The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Per Share Warrant Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed. Pursuant to the terms of the Subscription Agreement, the Company shall seek to have the Warrants listed on the OTCBB.

 

 

3.	Certain Adjustments .

 

(a)   Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant)(“ Common Stock Equivalents ”), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Per Share Warrant Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective at the close of business on the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective at the close of business on the effective date in the case of a subdivision, combination or re-classification. Any adjustment in the Per Share Warrant Price in accordance with this Section 3(a) shall also effect a proportionate adjustment in the Threshold Price (defined below).

 

(b)   Subsequent Equity Sales . If the Company, at any time while this Warrant is outstanding, shall sell or grant any option to purchase or sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than $2.00 (the “ Threshold Price ”) (provided that in the event the Company issues any warrants entitling any Person to acquire shares of Common Stock, the Threshold Price with respect to such warrants shall equal $2.40) per share of Common Stock (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Threshold Price, such issuance shall be deemed to have occurred for less than the Threshold Price on such date of the Dilutive Issuance), then the Per Share Warrant Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Per Share Warrant Price payable hereunder, after taking into account the decrease in the Per Share Warrant Price, shall be equal to the aggregate Per Share Warrant Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b) , indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms in accordance with Section 3(e) below (such notice the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b) , upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. As used herein, the term “ Exempt Issuance ” shall mean (i) any issuance, sale, grant or award of any Common Stock, option or right to purchase Common Stock, or any security convertible into or exchangeable for Common Stock issued or issuable to any officer, director, employee, consultant or advisor of the Company pursuant to a bona fide option or equity incentive plan or other agreement or arrangement duly adopted by the Company, in consideration for services rendered or to be rendered to the Company by such officer, director, employee, consultant or advisor and (ii) any issuance of Preferred Stock or of Common Stock underlying the Preferred Stock and Warrants.

 

 

(c)   In case of any capital reorganization or reclassification, or any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company but excluding any exchange of securities or merger with another corporation in which the Company is a continuing corporation and that does not result in any reclassification of or similar change in the Common Stock), the Holder of this Warrant shall have the right thereafter to receive on the exercise of this Warrant the kind and amount of securities, cash or other property which the Holder would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had this Warrant been exercised immediately prior to the effective date of such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth in this Section 3 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. The above provisions of this Section 3(c) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. The Company shall require the issuer of any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant to be responsible for all of the agreements and obligations of the Company hereunder. Notice of any such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and of said provisions so proposed to be made, shall be mailed to the Holders of the Warrants not less than twenty (20) days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes.

 

(d)   No adjustment in the Per Share Warrant Price shall be required unless such adjustment would require an increase or decrease of at least $0.01 per share of Common Stock; provided , however , that any adjustments which by reason of this Section 3(d) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided , further , however, that adjustments shall be required and made in accordance with the provisions of this Section 3 (other than this Section 3(d )) not later than such time as may be required in order to preserve the tax-free nature of a distribution, if any, to the Holder of this Warrant or Common Stock issuable upon the exercise hereof. All calculations under this Section 3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Anything in this Section 3 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Per Share Warrant Price, in addition to those required by this Section 3 , as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable.

 

 

(e)   Whenever the Per Share Warrant Price or the number of Warrant Shares is adjusted as provided in this Section 3 and upon any modification of the rights of a Holder of Warrants in accordance with this Section 3 , the Company shall promptly prepare a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause copies of such certificate to be mailed to the Holders of the Warrants. The Company may, but shall not be obligated to unless requested by a Majority of the Holders, obtain, at its expense, a certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular auditors of the Company) setting forth the Per Share Warrant Price and the number of Warrant Shares in effect after such adjustment or the effect of such modification, a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause copies of such certificate to be mailed to the Holders of the Warrants.

 

(f)   If the Board of Directors of the Company shall declare any dividend or other distribution with respect to the Common Stock other than a cash distribution out of earned surplus, the Company shall mail notice thereof to the Holders of the Warrants not less than ten (10) days prior to the record date fixed for determining stockholders entitled to participate in such dividend or other distribution.

 

(g)   If, as a result of an adjustment made pursuant to this Section 3 , the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of any Warrant promptly after such adjustment) shall determine, in good faith, the allocation of the adjusted Per Share Warrant Price between or among shares or such classes of capital stock or shares of Common Stock and other capital stock.

 

(h)   Upon the expiration of any rights, options, warrants or conversion privileges with respect to the issuance of which an adjustment to the Per Share Warrant Price had been made, if such option, right, warrant or conversion shall not have been exercised, the number of Warrant Shares purchasable upon exercise of this Warrant, to the extent this Warrant has not then been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (A) the fact that Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion privileges, and (B) the fact that such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion privileges whether or not exercised; provided , however , that no such readjustment shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of this Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion privileges.

 

 

(i)   In case any event shall occur as to which the other provisions of this Section 3 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of the adjustments set forth in this Section 3 then, in each such case, the Board of Directors of the Company shall in good faith determine the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants. Upon such determination, the Company will promptly mail a copy thereof to the Holder of this Warrant and shall make the adjustments described therein.

 

4.

Fully Paid Stock; Taxes . The shares of the Common Stock represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, subject to compliance by the Holder with the terms hereof, at the time of such delivery, be duly authorized, validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights or rights of first refusal imposed by any agreement to which the Company is a party, and the Company will take all such actions as may be necessary to assure that the par value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. The Company shall pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes which may be payable in respect of the issue of any Warrant Share or any certificate thereof to the extent required because of the issuance by the Company of such security.

 

5.

Registration Under Act . The Holder shall have the right to participate in the registration rights granted to purchasers of the Units (as defined in the Subscription Agreement) pursuant to Article VII of the Subscription Agreement. By acceptance of this Warrant, the Holder agrees to comply with the provisions in Article VII of the Subscription Agreement.

 

6.	Investment Intent; Limited Transferability .

 

(a)   By accepting this Warrant, the Holder represents to the Company that it understands that this Warrant and any securities obtainable upon exercise of this Warrant have not been registered for sale under Federal or state securities laws and are being offered and sold to the Holder pursuant to one or more exemptions from the registration requirements of such securities laws. In the absence of an effective registration of such securities or an exemption therefrom, any certificates for such securities shall bear the legend set forth on the first page hereof. The Holder understands that it must bear the economic risk of its investment in this Warrant and hold any securities obtainable upon exercise of this Warrant for an indefinite period of time, as this Warrant and such securities have not been registered under Federal or state securities laws and therefore cannot be sold unless subsequently registered under such laws, unless an exemption from such registration is available. The Holder further represents to the Company, by accepting this Warrant, that it has full power and authority to accept this Warrant and make the representations set forth herein.

 

 

(b)   The Holder, by its acceptance of this Warrant, represents to the Company that it is acquiring this Warrant and will acquire any securities obtainable upon exercise of this Warrant for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Act. The Holder agrees, by acceptance of this Warrant, that this Warrant and any such securities will not be sold or otherwise transferred unless (i) a registration statement with respect to such transfer is effective under the Act and any applicable state securities laws or (ii) such sale or transfer is made pursuant to one or more exemptions from the Act.

 

(c)   In addition to the limitations set forth in Section 1 and in accordance with the legend on the first page hereof, this Warrant may not be sold, transferred, assigned or hypothecated by the Holder except in compliance with the provisions of the Act and the applicable state securities “blue sky” laws, and is so transferable only upon the books of the Company which it shall cause to be maintained for such purpose. The Company may treat the registered Holder of this Warrant as it appears on the Company’s books at any time as the Holder for all purposes. The Company shall permit any Holder of a Warrant or its duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered Holders of Warrant. All Warrants issued upon the transfer or assignment of this Warrant will be dated the same date as this Warrant, and all rights of the holder thereof shall be identical to those of the Holder unless, in each case, otherwise prohibited by applicable law.

 

(d)   The Holder has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the Warrants or the exercise of the Warrants; and (ii) the opportunity to request such additional information which the Company possesses or can acquire without unreasonable effort or expense.

 

(e)   The Holder did not (i) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (ii) attend any seminar, meeting or investor or other conference whose attendees were, to such Holder’s knowledge, invited by any general solicitation or general advertising.

 

(f)   The Holder is an “accredited investor” within the meaning of Regulation D under the Act. Such Holder is acquiring the Warrants for its own account and not with a present view to, or for sale in connection with, any distribution thereof in violation of the registration requirements of the Act, without prejudice, however, to such Holder’s right, subject to the provisions of the Subscription Agreement and this Warrant, at all times to sell or otherwise dispose of all or any part of such Warrants and Warrant Shares.

 

(g)   Either by reason of such Holder’s business or financial experience or the business or financial experience of its professional advisors (who are unaffiliated with and who are not compensated by the Company or any affiliate, finder or selling agent of the Company, directly or indirectly), such Holder has the capacity to protect such Holder’s interests in connection with the transactions contemplated by this Warrant and the Subscription Agreement. The Holder, by its acceptance of this Warrant, represents to the Company that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Warrant. Holder also represents it has not been organized for the purpose of acquiring this Warrant.

 

 

7.	Optional   Redemption .

 

(a)   In the event that the Current Market Price of the Common Stock for any twenty (20) of the last thirty (30) consecutive Trading Days on the principal national securities exchange on which the Common Stock is admitted to trading or listed, including the NASDAQ, or other similar organization, or, if the Common Stock is not reported on a national securities exchange, the per share sale price for the Common Stock in the over-the-counter market as reported by the OTCBB or another over-the-counter market is at least $5.00 per share (subject to adjustment for any stock splits, combinations, or similar events with respect to the Common Stock after the original issuance date of this Warrant) (the “ Redemption Price ”) and the average daily trading volume of the Common Stock is no less than 100,000 shares per day during such 30-day period , the Company shall be entitled to redeem all, but not less than all, of the Warrant Shares at a per Warrant Share redemption price of $0.01, at any time after the completion of such thirty (30) consecutive trading day period by providing thirty (30) business days’ written notice to the Holders. The Holder agrees to return the certificate representing the redeemed Warrants to the Company upon their redemption (or evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant in accordance with Section 8 hereof).

 

(b)   Notwithstanding Section 7(a) hereof, for so long as any Warrant Shares are not subject to a registration statement declared effective by the SEC or are not otherwise permitted to be immediately sold, in whole, pursuant to an exemption to registration for such resale, including pursuant to Rule 144(b) of the Act, the Company shall not be entitled to exercise its redemption rights pursuant to Section 7(a) above.

 

8.

Loss, etc., of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination.

 

9.

Warrant Holder Not Stockholder . This Warrant does not confer upon the Holder any right to vote on or receive dividends or consent to or receive notice as a stockholder of the Company, as such, in respect of any matters whatsoever, nor any other rights or liabilities as a stockholder, prior to the exercise hereof; this Warrant does, however, require certain notices to Holders as set forth herein.

 

10.	Communication . No notice or other communication under this Warrant shall be effective or deemed to have been given unless, the same is in writing and is mailed by first-class mail, postage prepaid, or via recognized overnight courier with confirmed receipt, addressed to:

 

 

(a)   the Company at China Advanced Construction Materials Group, Inc., Yingu Plaza, 9 Beisihuanxi Road, Suite 1708, Haidian District , Beijing 100080 PRC, Attention: Chief Executive Officer, or other such address as the Company has designated in writing to the Holder; or

 

(b)   the Holder at the address last furnished to the Company in writing by the Holder.

 

11.	Headings . The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof.

 

12.

Applicable Law . This Warrant will be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The Holder hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the State of New York with respect to any dispute arising under this Agreement or the transactions contemplated hereby or thereby.

 

13.

Amendment, Waiver, etc . Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provision hereof may be amended, waived, discharged or terminated upon the written consent of the Company and the Majority of the Holders and such amendment, waiver, discharge or termination shall be effective with respect to the Company and all Holders.

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by the undersigned duly authorized officer, this 11 ^th day of June, 2008.

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
By:
	Name:
	Title: Chief Executive Officer

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to

purchase shares of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1)	The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by China Advanced Construction Materials Group, Inc., a Delaware corporation (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2)	The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3)	The Holder intends that payment of the Exercise Price shall be made as (check one):

 

o

Cash Exercise

 

o

“Cashless Exercise” under Section 1(c) in accordance with the terms of the Warrant.

 

(4)	If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ to the Company in accordance with the terms of the Warrant.

 

(5)	Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

 

Name of Holder: ___________________________

 

By:__________________________________

 

Name: _______________________________

 

Title: _______________________________

 

(Signature must co nform in all respects to name of Holder as specified on the face of the Warrant)

 

ASSIGNMENT

 

FOR VALUE RECEIVED _______________ (“ Assignor ”) hereby sells, assigns and transfers unto ____________________ (“ Transferee ”) the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint _____________________, attorney, to transfer said Warrant on the books of China Advanced Construction Materials Group, Inc. By acceptance of the foregoing Warrant, Transferee shall become a Holder under said Warrant and subject to the rights, obligations and representations of Holder set forth in said Warrant.

ASSIGNOR:
Dated:_______________________	Signature:____________________________
	Address:_____________________________
TRANSFEREE:
Dated:_______________________	Signature:____________________________
	Address:_____________________________

 

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED _______________ (“ Assignor ”) hereby assigns and transfers unto ____________________ (“ Transferee ”) the right to purchase _______ shares of Common Stock, par value $0.001 per share, of China Advanced Construction Materials Group, Inc. covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ____________________, attorney, to transfer such part of said Warrant on the books of China Advanced Construction Materials Group, Inc. By acceptance of the proportionate part of foregoing Warrant, Transferee shall become a Holder under said proportionate part of said Warrant and subject to the rights, obligations and representations of Holder set forth in said Warrant.

ASSIGNOR:
Dated:_______________________	Signature:____________________________
	Address:_____________________________
TRANSFEREE:
Dated:_______________________	Signature:____________________________
	Address:_____________________________

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAW. THIS WARRANT AND SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE PLEDGED, TRANSFERRED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR DELIVERY OF AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL COMPLIANCE WITH RULE 144 UNDER THE ACT.

 

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC .

 

Warrant for the Purchase of Shares of Common Stock

No. 2008-[ ]

_________ Shares

FOR VALUE RECEIVED, CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC., a Delaware corporation (the “ Company ”), hereby certifies that [________________], its designee or its permitted assigns is entitled to purchase from the Company, at any time or from time to time commencing on June 11, 2008 (the “ Issuance Date ”) and prior to 5:00 P.M., New York City time, on June 10, 2013 (the “ Exercise Period ”), [________________] fully paid and non-assessable shares of common stock, $0.001 par value per share, of the Company for a purchase price per share of $2.40. Hereinafter, (i) said common stock, $0.001 par value per share, of the Company, is referred to as the “ Common Stock ”; (ii) the shares of the Common Stock (subject to adjustment as set forth herein) purchasable hereunder or under any other Warrant (as hereinafter defined) are referred to as the “ Warrant Shares ”; (iii) the aggregate purchase price payable for the Warrant Shares purchasable hereunder is referred to as the “ Aggregate Warrant Price ”; (iv) the price payable (initially $2.40 per share subject to adjustment as set forth herein) for each of the Warrant Shares hereunder is referred to as the “ Per Share Warrant Price ”; (v) this Warrant, all similar Warrants issued on the date hereof and all warrants hereafter issued in exchange or substitution for this Warrant or such similar Warrants are referred to as the “ Warrants ”; (vi) the holder of this Warrant is referred to as the “ Holder ” and the holder of this Warrant and all other Warrants and Warrant Shares are referred to as the “ Holders ” and Holders of more than fifty percent (50%) of the Warrant Shares then issuable upon exercise of then outstanding Warrants are referred to as the “ Majority of the Holders ”) and (vii) the then Current Market Price per share of the Common Stock (the “ Current Market Price ” ) shall be deemed to be the last reported sale price of the Common Stock (as reported by Bloomberg Financial Markets) on the Trading Day (as defined below) immediately prior to such date or, in case no such reported sales take place on such day, the average of the last reported bid and ask prices of the Common Stock on such day, in either case on the principal national securities exchange on which the Common Stock is admitted to trading or listed, including the Nasdaq Global Select Market, the Nasdaq Global Market, and Nasdaq Capital Market (collectively “ NASDAQ ”), or other similar organization, or, if the Common Stock is not reported on a national securities exchange, the per share sale price for the Common Stock in the over-the-counter market as reported by the OTC Bulletin Board (the “ OTCBB ”) or another over-the-counter market, or if not so available, the fair market value of the Common Stock as determined in good faith by the Company’s Board of Directors. A “ Trading Day ” shall mean any day on which shares of the Company’s Common Stock are sold on the respective exchanges listed above. The Aggregate Warrant Price is not subject to adjustment.

 

 

This Warrant was originally issued pursuant to a Subscription Agreement (the “ Subscription Agreement ” ) between the Company and the subscriber named therein in connection with a private placement by the Company of its securities, as described in the Company’s Confidential Private Placement Memorandum dated March 17, 2008, as amended on April 11, 2008, May 21, 2008 and May 28, 2008 and in the Consent to Modification and Amendment Agreement to the PPM dated as of the date hereof. By acceptance of this Warrant, the Holder agrees to comply with all applicable provisions of the Subscription Agreement.

 

1.   Exercise of Warrant .

 

(a)   Except as set forth in Section 1(d) below, this Warrant may be exercised in whole at any time, or in part from time to time, by the Holder during the Exercise Period by the surrender of this Warrant (with the exercise notice, in the form attached hereto (the “ Exercise Notice ”), duly executed) at the address set forth in Section 10(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part, with payment for the Warrant Shares made by certified or official bank check payable to the order of, or wire transfer of immediately available funds to, the Company; or

 

(b)   If this Warrant is exercised in part, this Warrant must be exercised for a number of whole shares of the Common Stock and the Holder is entitled to receive a new Warrant covering the Warrant Shares that have not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon surrender of this Warrant in connection with the exercise of this Warrant pursuant to the terms hereof, the Company will (i) issue a certificate or certificates in the name of the Holder for the largest number of whole shares of the Common Stock to which the Holder shall be entitled upon such exercise and, if this Warrant is exercised in whole, in lieu of any fractional share of the Common Stock to which the Holder shall be entitled, pay to the Holder cash in an amount equal to the fair value of such fractional share (determined in such reasonable manner as the Board of Directors of the Company shall determine), and (ii) deliver the other securities and properties receivable upon the exercise of this Warrant, or the proportionate part thereof, if this Warrant is exercised in part, pursuant to the provisions of this Warrant.

 

(c)   Notwithstanding anything contained herein to the contrary, if (i) this Warrant is exercised on a date following the date one (1) year from the Issuance Date and (ii) the Registration Statement covering the Warrant Shares that are the subject of the Exercise Notice (the “ Registration Statement ”) has not been declared effective by the Securities and Exchange Commission (“ SEC ” ) , or is no longer in effect, the Holder may, in its sole discretion, exercise this Warrant, within (10) days of such date in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Warrant Price, and elect instead to receive upon such exercise the “ Net Number ” of shares of Common Stock determined according to the following formula (a “ Cashless Exercise ”):

 

 

Net Number = (A x B) - (A x C)

B

 

For purposes of the foregoing formula:

 

A=

the total number of shares with respect to which this Warrant is then being exercised.

 

B=

the average of the Current Market Prices of the shares of Common Stock for the five Trading Days ending on the date immediately preceding the date of the written notice of exercise.

 

C=

the Per Share Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise.

 

(d)   Notwithstanding anything herein to the contrary, in no event shall the Holder have the right or be required to exercise this Warrant to the extent, and only to the extent, that as a result of such exercise, the aggregate number of shares of Common Stock beneficially owned by the Holder, its affiliates and any “group” (as defined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended and the rules promulgated thereunder (the “ Exchange Act ”)) of which the Holder may be deemed to be a party (collectively the “ Affiliates ”) would exceed 9.99% of the outstanding shares of the Common Stock following such exercise. For purposes of this Section, beneficial ownership shall be calculated in accordance with Sections 13(d) and Section 16(a) of the Exchange Act. The provisions of this Section 1(d) may be waived by a Holder as to itself (and solely as to itself) upon not less than sixty-five (65) days prior written notice to the Company.

 

(e)   Upon exercise of this Warrant, the Company shall promptly (but in no event later than five (5) Trading Days after the date the Exercise Notice is delivered to the Company (the “ Exercise Date ”)) issue or cause to be issued and cause to be delivered to or upon the written order of the Holder and in such name or names as the Holder may designate (provided that, if the Registration Statement is not effective and the Holder directs the Company to deliver a certificate for the Warrant Shares in a name other than that of the Holder or an Affiliate of the Holder, it shall deliver to the Company on the Exercise Date an opinion of counsel reasonably satisfactory to the Company to the effect that the issuance of such Warrant Shares in such other name may be made pursuant to an available exemption from the registration requirements of the Act and all applicable state securities or blue sky laws), a certificate for the Warrant Shares issuable upon such exercise, free of restrictive legends, unless a registration statement covering the resale of the Warrant Shares and naming the Holder as a selling stockholder thereunder is not then effective or the Warrant Shares are not freely transferable without volume restrictions pursuant to Rule 144(b) under the Act. The Holder, or any person permissibly so designated by the Holder to receive Warrant Shares, shall be deemed to have become the holder of record of such Warrant Shares as of the Exercise Date. If the Warrant Shares are to be issued free of all restrictive legends, the Company shall, upon the written request of the Holder, use its best efforts to deliver, or cause to be delivered, Warrant Shares hereunder electronically through The Depository Trust Company or another established clearing corporation performing similar functions, if available; provided, that, the Company may, but will not be required to, change its transfer agent if its current transfer agent cannot deliver Warrant Shares electronically through such a clearing corporation.

 

 

(f)   If by the close of the fifth (5 ^th ) Trading Day after delivery of an Exercise Notice, the Company fails to deliver to the Holder a certificate representing the required number of Warrant Shares in the manner required pursuant to Section 1 , and if after such fifth Trading Day and prior to the receipt of such Warrant Shares, the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “ Buy-In ”), then the Company shall, within three (3) Trading Days after the Holder’s request and in the Holder’s sole discretion, either (1) pay in cash to the Holder an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “ Buy-In Price ”), at which point the Company’s obligation to deliver such certificate (and to issue such Warrant Shares) shall terminate or (2) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Warrant Shares and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of Warrant Shares, times (B) the closing bid price of a share of Common Stock on the date of exercise.

 

(g)   To the extent permitted by law, the Company’s obligations to issue and deliver Warrant Shares in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.

 

2.   Reservation of Warrant Shares; Listing . The Company agrees that, prior to the expiration of this Warrant, the Company shall at all times (a) have authorized and in reserve, and shall keep available, solely for issuance and delivery upon the exercise of this Warrant, one hundred twenty (120%) percent of the shares of the Common Stock and other securities and properties as from time to time shall be receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer, other than under Federal or state securities laws, and free and clear of all preemptive rights and rights of first refusal and (b) if the Company hereafter lists its Common Stock on any national securities exchange, including NASDAQ, use its commercially reasonable efforts to keep the Warrant Shares authorized for listing on such exchange upon notice of issuance. The Company covenants that all Warrant Shares so issuable and deliverable shall, upon issuance and the payment of the applicable Per Share Warrant Price in accordance with the terms hereof, be duly and validly authorized, issued and fully paid and nonassessable. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any securities exchange or automated quotation system upon which the Common Shares may be listed.

 

 

3.   Certain Adjustments .

 

(a)   Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant)(“ Common Stock Equivalents ”), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Per Share Warrant Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(b)   Subsequent Equity Sales . If the Company, at any time while this Warrant is outstanding, shall sell or grant any option to purchase or sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Per Share Warrant Price (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Per Share Warrant Price, such issuance shall be deemed to have occurred for less than the Per Share Warrant Price on such date of the Dilutive Issuance), then the Per Share Warrant Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Per Share Warrant Price payable hereunder, after taking into account the decrease in the Per Share Warrant Price, shall be equal to the aggregate Per Share Warrant Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 3(b) , indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms in accordance with Section 3(e) below (such notice the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b) , upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise. As used herein, the term “ Exempt Issuance ” shall mean any issuance, sale, grant or award of any Common Stock, option or right to purchase Common Stock, or any security convertible into or exchangeable for Common Stock issued or issuable to any officer, director, employee, consultant or advisor of the Company pursuant to a bona fide option or equity incentive plan or other agreement or arrangement duly adopted by the Company, in consideration for services rendered or to be rendered to the Company by such officer, director, employee, consultant or advisor.

 

 

(c)   In case of any capital reorganization or reclassification, or any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of all or substantially all of the assets of the Company, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company but excluding any exchange of securities or merger with another corporation in which the Company is a continuing corporation and that does not result in any reclassification of or similar change in the Common Stock), the Holder of this Warrant shall have the right thereafter to receive on the exercise of this Warrant the kind and amount of securities, cash or other property which the Holder would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had this Warrant been exercised immediately prior to the effective date of such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth in this Section 3 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. The above provisions of this Section 3(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. The Company shall require the issuer of any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant to be responsible for all of the agreements and obligations of the Company hereunder. Notice of any such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and of said provisions so proposed to be made, shall be mailed to the Holders of the Warrants not less than twenty (20) days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes.

 

(d)   No adjustment in the Per Share Warrant Price shall be required unless such adjustment would require an increase or decrease of at least $0.01 per share of Common Stock; provided , however , that any adjustments which by reason of this Section 3(c) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided , further , however, that adjustments shall be required and made in accordance with the provisions of this Section 3 (other than this subsection 3(i)) not later than such time as may be required in order to preserve the tax-free nature of a distribution, if any, to the Holder of this Warrant or Common Stock issuable upon the exercise hereof. All calculations under this Section 3 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Anything in this Section 3 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Per Share Warrant Price, in addition to those required by this Section 3 , as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable.

 

 

(e)   Whenever the Per Share Warrant Price or the number of Warrant Shares is adjusted as provided in this Section 3 and upon any modification of the rights of a Holder of Warrants in accordance with this Section 3 , the Company shall promptly prepare a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause copies of such certificate to be mailed to the Holders of the Warrants. The Company may, but shall not be obligated to unless requested by a Majority of the Holders, obtain, at its expense, a certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular auditors of the Company) setting forth the Per Share Warrant Price and the number of Warrant Shares in effect after such adjustment or the effect of such modification, a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause copies of such certificate to be mailed to the Holders of the Warrants.

 

(f)   If the Board of Directors of the Company shall declare any dividend or other distribution with respect to the Common Stock other than a cash distribution out of earned surplus, the Company shall mail notice thereof to the Holders of the Warrants not less than ten (10) days prior to the record date fixed for determining stockholders entitled to participate in such dividend or other distribution.

 

(g)   If, as a result of an adjustment made pursuant to this Section 3 , the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of any Warrant promptly after such adjustment) shall determine, in good faith, the allocation of the adjusted Per Share Warrant Price between or among shares or such classes of capital stock or shares of Common Stock and other capital stock.

 

(h)   Upon the expiration of any rights, options, warrants or conversion privileges with respect to the issuance of which an adjustment to the Per Share Warrant Price had been made, if such option, right, warrant or conversion shall not have been exercised, the number of Warrant Shares purchasable upon exercise of this Warrant, to the extent this Warrant has not then been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as they would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (A) the fact that Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion privileges, and (B) the fact that such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion privileges whether or not exercised; provided , however , that no such readjustment shall have the effect of decreasing the number of Warrant Shares purchasable upon exercise of this Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion privileges.

 

 

(i)   In case any event shall occur as to which the other provisions of this Section 3 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of the adjustments set forth in this Section 3 then, in each such case, the Board of Directors of the Company shall in good faith determine the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants. Upon such determination, the Company will promptly mail a copy thereof to the Holder of this Warrant and shall make the adjustments described therein.

 

4.   Fully Paid Stock; Taxes . The shares of the Common Stock represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, subject to compliance by the Holder with the terms hereof, at the time of such delivery, be duly authorized, validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights or rights of first refusal imposed by any agreement to which the Company is a party, and the Company will take all such actions as may be necessary to assure that the par value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. The Company shall pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes which may be payable in respect of the issue of any Warrant Share or any certificate thereof to the extent required because of the issuance by the Company of such security.

 

5.   Registration Under Act . The Holder shall have the right to participate in the registration rights granted to purchasers of the Units (as defined in the Subscription Agreement) pursuant to Article VII of the Subscription Agreement. By acceptance of this Warrant, the Holder agrees to comply with the provisions in Article VII of the Subscription Agreement.

 

6.   Investment Intent; Limited Transferability .

 

(a)   By accepting this Warrant, the Holder represents to the Company that it understands that this Warrant and any securities obtainable upon exercise of this Warrant have not been registered for sale under Federal or state securities laws and are being offered and sold to the Holder pursuant to one or more exemptions from the registration requirements of such securities laws. In the absence of an effective registration of such securities or an exemption therefrom, any certificates for such securities shall bear the legend set forth on the first page hereof. The Holder understands that it must bear the economic risk of its investment in this Warrant and any securities obtainable upon exercise of this Warrant for an indefinite period of time, as this Warrant and such securities have not been registered under Federal or state securities laws and therefore cannot be sold unless subsequently registered under such laws, unless an exemption from such registration is available. The Holder further represents to the Company, by accepting this Warrant, that it has full power and authority to accept this Warrant and make the representations set forth herein.

 

(b)   The Holder, by its acceptance of this Warrant, represents to the Company that it is acquiring this Warrant and will acquire any securities obtainable upon exercise of this Warrant for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Act. The Holder agrees, by acceptance of this Warrant, that this Warrant and any such securities will not be sold or otherwise transferred unless (i) a registration statement with respect to such transfer is effective under the Act and any applicable state securities laws or (ii) such sale or transfer is made pursuant to one or more exemptions from the Act.

 

 

(c)   In addition to the limitations set forth in Section 1 and in accordance with the legend on the first page hereof, this Warrant may not be sold, transferred, assigned or hypothecated by the Holder except in compliance with the provisions of the Act and the applicable state securities “blue sky” laws, and is so transferable only upon the books of the Company which it shall cause to be maintained for such purpose. The Company may treat the registered Holder of this Warrant as it appears on the Company’s books at any time as the Holder for all purposes. The Company shall permit any Holder of a Warrant or its duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered Holders of Warrant. All Warrants issued upon the transfer or assignment of this Warrant will be dated the same date as this Warrant, and all rights of the holder thereof shall be identical to those of the Holder unless, in each case, otherwise prohibited by applicable law.

 

(d)   The Holder has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the Warrants or the exercise of the Warrants; and (ii) the opportunity to request such additional information which the Company possesses or can acquire without unreasonable effort or expense.

 

(e)   The Holder did not (i) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio, whether closed circuit, or generally available; or (ii) attend any seminar, meeting or investor or other conference whose attendees were, to such Holder’s knowledge, invited by any general solicitation or general advertising.

 

(f)   The Holder is an “accredited investor” within the meaning of Regulation D under the Act. Such Holder is acquiring the Warrants for its own account and not with a present view to, or for sale in connection with, any distribution thereof in violation of the registration requirements of the Act, without prejudice, however, to such Holder’s right, subject to the provisions of the Subscription Agreement and this Warrant, at all times to sell or otherwise dispose of all or any part of such Warrants and Warrant Shares.

 

(g)   Either by reason of such Holder’s business or financial experience or the business or financial experience of its professional advisors (who are unaffiliated with and who are not compensated by the Company or any affiliate, finder or selling agent of the Company, directly or indirectly), such Holder has the capacity to protect such Holder’s interests in connection with the transactions contemplated by this Warrant and the Subscription Agreement. The Holder, by its acceptance of this Warrant, represents to the Company that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in this Warrant. Holder also represents it has not been organized for the purpose of acquiring this Warrant.

 

 

7.   Optional   Redemption .

 

(a)   In the event that the Current Market Price of the Common Stock for any twenty (20) consecutive Trading Days within any thirty (30) Trading Day period on the principal national securities exchange on which the Common Stock is admitted to trading or listed, including the NASDAQ, or other similar organization, or, if the Common Stock is not reported on a national securities exchange, the per share sale price for the Common Stock in the over-the-counter market as reported by the OTCBB or another over-the-counter market is at least $5.00 per share (subject to adjustment for any stock splits, combinations, or similar events with respect to the Common Stock after the original issuance date of this Warrant) (the “ Redemption Price ”), the Company shall be entitled to redeem all, but not less than all, of the Warrant Shares at a per Warrant Share redemption price of $0.01, at any time after the completion of such twenty (20) consecutive trading day period by providing thirty (30) business days’ written notice to the Holders. The Holder agrees to return the certificate representing the redeemed Warrants to the Company upon their redemption (or evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant in accordance with Section 8 hereof).

 

(b)   Notwithstanding Section 7(a) hereof, for so long as any Warrant Shares are not subject to a registration statement declared effective by the SEC or are not otherwise permitted to be immediately sold, in whole, pursuant to an exemption to registration for such resale, including pursuant to Rule 144(b) of the Act, the Company shall not be entitled to exercise its redemption rights pursuant to Section 7(a) above.

 

8.   Loss, etc., of Warrant . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination.

 

9.   Warrant Holder Not Stockholder . This Warrant does not confer upon the Holder any right to vote on or consent to or receive notice as a stockholder of the Company, as such, in respect of any matters whatsoever, nor any other rights or liabilities as a stockholder, prior to the exercise hereof; this Warrant does, however, require certain notices to Holders as set forth herein.

 

10.   Communication . No notice or other communication under this Warrant shall be effective or deemed to have been given unless, the same is in writing and is mailed by first-class mail, postage prepaid, or via recognized overnight courier with confirmed receipt, addressed to:

 

(a)   the Company at China Advanced Construction Materials Group, Inc., [Address], [City], [State] [Zip], Attn: Chief Executive Officer, or other such address as the Company has designated in writing to the Holder ; or

 

(b)   the Holder at the address last furnished to the Company in writing by the Holder .

 

11.   Headings . The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof.

 

 

12.   Applicable Law . This Warrant will be governed by and interpreted in accordance with the laws of the State of Delaware without regard to the principles of conflict of laws. The Holder hereby submit to the exclusive jurisdiction of the United States federal and state courts located in the State of New York with respect to any dispute arising under this Agreement or the transactions contemplated hereby or thereby.

 

13.   Amendment, Waiver, etc . Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that any provision hereof may be amended, waived, discharged or terminated upon the written consent of the Company and the Majority of the Holders and such amendment, waiver, discharge or termination shall be effective with respect to the Company and all Holders.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by the undersigned duly authorized officer, this 11 ^th day of June, 2008.

CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
By:
	Name: Xianfu Han
	Title: Chief Executive Officer

 

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to

purchase shares of Common Stock under the foregoing Warrant)

 

Ladies and Gentlemen:

 

(1)	The undersigned is the Holder of Warrant No. __________ (the “ Warrant ”) issued by China Advanced Construction Materials Group, Inc., a Delaware corporation (the “ Company ”). Capitalized terms used herein and not otherwise defined herein have the respective meanings set forth in the Warrant.

 

(2)	The undersigned hereby exercises its right to purchase __________ Warrant Shares pursuant to the Warrant.

 

(3)	The Holder intends that payment of the Exercise Price shall be made as (check one):

 

o

Cash Exercise

 

o

“Cashless Exercise” under Section 1(c) in accordance with the terms of the Warrant.

 

(4)	If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $_______ to the Company in accordance with the terms of the Warrant.

 

(5)	Pursuant to this Exercise Notice, the Company shall deliver to the Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

Dated:_______________, _____

 

Name of Holder: ___________________________

 

By:__________________________________

 

Name: _______________________________

 

Title: _______________________________

(Signature must co nform in all respects to name of Holder as specified on the face of the Warrant)

 

ASSIGNMENT

 

FOR VALUE RECEIVED _______________ (“ Assignor ”) hereby sells, assigns and transfers unto ____________________ (“ Transferee ”) the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint _____________________, attorney, to transfer said Warrant on the books of China Advanced Construction Materials Group, Inc. By acceptance of the foregoing Warrant, Transferee shall become a Holder under said Warrant and subject to the rights, obligations and representations of Holder set forth in said Warrant.

ASSIGNOR:
Dated:			Signature:
			Address:
TRANSFEREE:
Dated:			Signature:
			Address:

PARTIAL ASSIGNMENT

 

FOR VALUE RECEIVED _______________ (“ Assignor ”) hereby assigns and transfers unto ____________________ (“ Transferee ”) the right to purchase _______ shares of Common Stock, par value $0.001 per share, of China Advanced Construction Materials Group, Inc. covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ____________________, attorney, to transfer such part of said Warrant on the books of China Advanced Construction Materials Group, Inc. By acceptance of the proportionate part of foregoing Warrant, Transferee shall become a Holder under said proportionate part of said Warrant and subject to the rights, obligations and representations of Holder set forth in said Warrant.

 

ASSIGNOR:
Dated:			Signature:
			Address:
TRANSFEREE:
Dated:			Signature:
			Address:

 

 

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 ”), 405 Lexington Avenue, New York, New York 10174, and Anslow + Jaclin, LLP, 195 Route 9 South, Suite 204, Manalapan, NJ 07726 (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 I ssuer 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 Anslow + 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:

Anslow + Jaclin, LLP

195 Route 9 South, Suite 204

Manalapan, NJ 07726

Attention: Richard Anslow, Esq.

If to the Issuer:  

China Advanced Construction Materials Group, Inc.

Yingu Plaza, 9 Beisihuanxi Road, Suite 1708

Haidian District, Beijing 100080

Attention: Xianfu Han, Chief Executive Officer

If to the Placement Agent:  

Maxim Group, LLC

405 Lexington Avenue

New York, NY 10174

Attn: James Siegel

 

If to the Investor Representative:  

 

Professional Offshore Opportunity Fund, Ltd.

1400 Old Country Road

Suite 206

Westbury, NY 11590

Attention: Howard B. Berger, 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.

 

ANSLOW + JACLIN, LLP
By:	/s/ Kristina L. Trauger, Esq.
	Name: Kristina L. Trauger, Esq.
	Title:
CHINA ADVANCED CONSTRUCTION MATERIALS GROUP, INC.
By:	/s/ Xianfu Han
	Name: Xianfu Han
	Title: Chief Executive Officer
MAXIM GROUP LLC
By:	/s/ Clifford A. Teller
	Name: Clifford A. Teller
	Title: Director of Investment Banking
PROFESSIONAL OFFSHORE OPPORTUNITY FUND, LTD.
By:	/s/ Howard Berger
	Name: Howard Berger
	Title: Manager