ESCROW AGREEMENT
Exhibit
10.4
THIS
ESCROW AGREEMENT (“Agreement”) is made as of October 23, 2007 by and between
International Imaging Systems, Inc. (the “Company”), and each of the Purchasers
whose names are set forth on Exhibit
A
to the
Series A Convertible Preferred Stock Purchase Agreement dated this same date
(individually, a “Purchaser”
and
collectively, the “Purchasers”
and
together with the Company, the “Parties”), and Leser, Hunter, Taubman &
Taubman, with offices at 00 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000 (the
“Escrow Agent”).
RECITALS:
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(1)
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Pursuant
to that certain Series A Convertible Preferred Stock Purchase Agreement,
dated as of October 23, 2007 by and among the Company and the Purchasers
(the “Purchase Agreement”), a copy of which is attached hereto as
Exhibit
A
and incorporated herein by reference, the Purchasers purchased One
Million
(1,000,000) shares of the Company’s Series A Convertible Preferred Stock,
which is convertible into Four
Million Five Hundred Forty Five Thousand Four Hundred Fifty Five
(4,545,455)
shares of the Company’s Common Stock subject to adjustment pursuant to the
Certificate of Designation of the Relative Rights and Preferences
of the
Series A Convertible Preferred Stock, for an aggregate of $10,000,000
(the
4,545,455, subject to adjustment from time to time, is referred to
herein
as the “Purchased Stock”). Capitalized terms used in this Agreement
without definition, have the meaning assigned to those terms in the
Purchase Agreement;
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(2)
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To
induce the Purchasers to enter into the Purchase Agreement, Redsky
Group
Limited, a British Virgin Islands company (“Redsky Group”), which is the
majority stockholder of the Company has agreed to deposit Four
Million Five Hundred Forty Five Thousand Four Hundred Fifty Five
(4,545,455)
shares of the Company’s Common Stock it owns (“Escrow Shares”), in an
escrow account immediately prior to the Closing, to be held by the
Escrow
Agent for disbursement in accordance with the terms and conditions
set
forth herein, if the Company meets the specified Performance Thresholds,
as hereinafter defined;
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(3)
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This
Agreement constitutes the Share Escrow Agreement referred to in the
Purchase Agreement pursuant to which the Escrow Agent shall receive
and
disburse the Escrow Shares.
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NOW,
THEREFORE, in consideration of the covenants and mutual promises contained
herein and other good and valuable consideration, the receipt and legal
sufficiency of which are hereby acknowledged and intending to be legally bound
hereby, the parties agree as follows:
1
Exhibit
10.4
ARTICLE
1
TERMS
OF
THE ESCROW
1.1 Appointment
of Escrow Holder.
The
parties hereby agree to have Xxxxx Xxxxxx Xxxxxxx & Xxxxxxx act as Escrow
Agent whereby the Escrow Agent shall receive the Escrow Shares in escrow and
distribute the same as set forth in this Agreement.
1.2 Escrow
Deposit
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(a)
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In
accordance with the terms of the Purchase Agreement, immediately
prior to
the Closing, Redsky Group shall deliver the Escrow Shares to the
Escrow
Agent;
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(b)
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The
Escrow Agent shall hold the Escrow Shares in the Escrow Account at
all
times until such Escrow Shares are disbursed in accordance herewith;
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(c)
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If
at any time, any Escrow Shares are disbursed to the Purchasers, Redsky
Group shall, within five (5) calendar days of such disbursement,
deliver
that number of additional shares of common stock as is necessary
to
maintain 100% of the number of Purchased Stock in the Escrow Account
at
all times.
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1.3 Performance
Threshold
If
the
Company does not achieve the specified percentage, which is based on a scale
of
100%, of the following Performance Thresholds, the Escrow Shares shall be
disbursed to the Purchasers as set forth herein:
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(a)
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Fiscal
Year 2007 Performance Threshold: on a per share basis, both the audited
Net Income and Cash from Operations must each exceed $0.27 per share
(equivalent to $8.1 million divided by 30 million shares outstanding)
(the
“2007 PT”);
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(b)
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Fiscal
Year 2008 Performance Threshold: on a per share basis, both the audited
Net Income and Cash from Operations must each exceed $0.45 per share
(equivalent to $13.5 million divided by 30 million shares outstanding)
(the “2008 PT”).
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(c)
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Each
Performance Threshold shall be determined as of the date the Company’s
audited financial statements for the corresponding fiscal year are
required to be filed with the Securities and Exchange Commission
pursuant
to the reporting requirements of the Securities Exchange Act of 1934
(the
“Exchange Act”), as amended (each such date for each of the applicable
fiscal years being hereinafter referred to as the “Audit Date”); and, if
the Company is not required to file reports pursuant to Section 13(a)
or
15(d) of the Exchange Act, and therefore prepares and furnishes the
documents required by Section 6 of the Registration Rights Agreement,
the
Performance Threshold shall be determined in accordance with such
prepared
documents and at such time.
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(d)
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With
respect to the 2007 PT and 2008 PT “Net Income” shall be defined in
accordance with US GAAP and reported by the Company in its audited
financial statements for each of 2007 and 2008, plus
any amounts that (1) may have been recorded as charges or liabilities
on
the 2007 and 2008 financial statements, respectively, due to the
application of EITF No. 00-19 that are associated with (i) any outstanding
Warrants of the Company, (ii) the transactions contemplated by this
Agreement, and (iii) any issuance under a performance based stock
incentive plan that was in existence on the Closing Date, and (2)
any and
all expenses incurred by the Company in connection with the consummation
of the transactions contemplated by the Purchase Agreement and the
Share
Exchange Agreement, dated as of even date herewith, by and among
the
Company, the Principal Shareholders of the Acquiror Company, set
forth on
Schedule
II
thereto, Redsky Group Limited, Princeton Capital Group and Baorun
China
Group Limited.
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2
Exhibit
10.4
1.4 Escrow
Release
The
Company shall remit written instructions to the Escrow Agent and the Purchasers
two (2) business days after the Audit Date, in the form of Exhibit
B
attached
hereto and made a part hereof, or in a form and substance satisfactory to the
Escrow Agent, directing the Escrow Agent to release the Escrow Shares within
five (5) business days of the Audit Date for each fiscal year, as specified
therein and in accordance with the following guidelines (the “Release Notice”):
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(a)
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If
the Company achieves 50% or less of the 2007 PT, the Escrow Agent shall
disburse 100% of the Escrow Shares to the Purchasers pro rata based
upon
the number of Purchased Stock the Purchaser beneficially owned on
the
Audit Date;
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(b)
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If
the Company achieves more than 50% and no more than 75% of the 2007
PT,
the Escrow Agent shall disburse that number of Escrow Shares equal
to two
(2) times the percentage by which the 2007 PT was not achieved, to
the
Purchasers pro rata based upon the number of Purchased Stock the
Purchaser
beneficially owned on the Audit Date; for example, if the Company
achieves
75% of the 2007 PT, the Escrow Agent shall disburse 50% of the Escrow
Shares to the Purchasers;
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(c)
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If
the Company achieves more than 75% and no more than 95% of the 2007
PT,
the Escrow Agent shall disburse that number of Escrow Shares equal
to the
percentage by which the 2007 PT was not achieved, to the Purchasers
pro
rata based upon the number of Purchased Stock the Purchaser beneficially
owned on the Audit Date; for example, if the Company achieves 95%
of the
2007 PT, the Escrow Agent shall disburse 5% of the Escrow Shares
to the
Purchasers;
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3
Exhibit
10.4
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(d)
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If
the Company achieves 50% or less of the 2008 PT, the Escrow Agent
shall
disburse 100% of the Escrow Shares to the Purchasers pro rata based
upon
the number of Purchased Stock the Purchaser beneficially owned on
the
Audit Date;
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(e)
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If
the Company achieves more than 50% and no more than 75% of the 2008
PT,
the Escrow Agent shall disburse that number of Escrow Shares equal
to two
(2) times the percentage by which the 2008 PT was not achieved, to
the
Purchasers pro rata based upon the number of Purchased Stock the
Purchaser
beneficially owned on the Audit Date; for example, if the Company
achieves
75% of the 2008 PT, the Escrow Agent shall disburse 50% of the Escrow
Shares to the Purchasers; and,
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(f)
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If
the Company achieves more than 75% and no more than 95% of the 2008
PT,
the Escrow Agent shall disburse that number of Escrow Shares equal
to the
percentage by which the 2008 PT was not achieved, to the Purchasers
pro
rata based upon the number of Purchased Stock the Purchaser beneficially
owned on the Audit Date; for example, if the Company achieves 95%
of the
2008 PT, the Escrow Agent shall disburse 5% of the Escrow Shares
to the
Purchasers.
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(g)
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If
any Escrow Shares remain in the Escrow Account after all of the
disbursements are made pursuant to the 2008 Release Notice, the Escrow
Agent shall return such remaining shares to Redsky
Group.
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(h)
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In
the event that the Closing does not occur and written notice of same,
signed by all
of
the parties hereto, is delivered to the Escrow Agent or upon the
written
instructions of all
of
the parties hereto, the Escrow Agent shall return the Escrow Shares
to
Redsky Group
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(i)
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Upon
the Escrow Agent’s completion of its obligations under Sections 1.4, this
Agreement shall terminate and the Escrow Agent shall have no further
liability hereunder.
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1.5 This
Agreement may be altered or amended only with the written consent of all of
the
parties hereto. Should any of the Parties attempt to change this Agreement
in a
manner, which, in the Escrow Agent’s discretion, shall be undesirable, the
Escrow Agent may resign as Escrow Agent by notifying the Parties in writing
five
days in advance. In the case of the Escrow Agent’s resignation or removal
pursuant to the foregoing, his only duty, until receipt of notice from the
Parties that a successor escrow agent has been appointed, shall be to hold
and
preserve the Escrow Shares that are in his possession. Upon receipt by the
Escrow Agent of said notice from the Parties of the appointment of a successor
escrow agent, the name of a successor escrow account and a direction to transfer
the Escrow Shares, the Escrow Agent shall promptly thereafter transfer all
of
the Escrow Shares that it is still holding in escrow, to said successor escrow
agent. Immediately after said transfer of the Escrow Shares, the Escrow Agent
shall furnish the Parties with proof of such transfer. The Escrow Agent is
authorized to disregard any notices, requests, instructions or demands received
by it from the Parties after the Escrow Agent promptly transfers all of the
Escrow Shares that it is still holding in escrow, to the above said successor
escrow agent.
4
Exhibit
10.4
1.5
The
Escrow Agent shall be reimbursed by the Parties for any reasonable expenses
incurred in the event there is a conflict between the parties and the Escrow
Agent shall deem it necessary to retain counsel, upon whose advice the Escrow
Agent may rely. The Escrow Agent shall not be liable for any action taken or
omitted by him in good faith and in no event shall the Escrow Agent be liable
or
responsible except for the Escrow Agent’s own gross negligence or willful
misconduct. The Escrow Agent has made no representations or warranties to the
Parties in connection with this transaction. The Escrow Agent has no liability
hereunder to either party other than to hold the Escrow Shares and to deliver
them under the terms hereof. Each party hereto agrees to indemnify and hold
harmless the Escrow Agent from and with respect to any suits, claims, actions
or
liabilities arising in any way out of this transaction including the obligation
to defend any legal action brought which in any way arises out of or is related
to this Agreement or the investment being made by Purchaser. The
Company acknowledges and represents that they are not being represented in
a
legal capacity by Xxxxx Xxxxxx Xxxxxxx & Xxxxxxx and have had the
opportunity to consult with their own legal advisors prior to the signing of
this Agreement. The Company acknowledges that the Escrow Agent is not rendering
securities advice to them with respect to this transaction or otherwise. The
Escrow Agent is acting as legal counsel for the Purchasers in connection with
the Purchase Agreement and related Transaction Documents and may continue to
act
as legal counsel for the Purchasers, from time to time, notwithstanding its
duties as the Escrow Agent hereunder. The Company consents to the Escrow Agent
acting in such capacity as legal counsel for the Purchasers and waives any
claim
that such representation represents a conflict of interest on the part of the
Escrow Agent. The Company understands that the Escrow Agent and the Purchasers
are relying explicitly on the foregoing provisions contained in this Section
1.5
in entering into this Agreement.
1.6 The
Escrow Agent shall be obligated only for the performance of such duties as
are
specifically set forth herein and may rely and shall be protected in relying
or
refraining from acting on any instrument reasonably believed by the Escrow
Agent
to be genuine and to have been signed or presented by the proper party or
parties. The Escrow Agent shall not be personally liable for any act the Escrow
Agent may do or omit to do hereunder as the Escrow Agent while acting in good
faith, and any act done or omitted by the Escrow Agent pursuant to the advice
of
the Escrow Agent's attorneys-at-law shall be conclusive evidence of such good
faith.
1.7 The
Escrow Agent is hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In
case the Escrow Agent obeys or complies with any such order, judgment or decree,
the Escrow Agent shall not be liable to any of the parties hereto or to any
other person, firm or corporation by reason of such decree being subsequently
reversed, modified, annulled, set aside, vacated or found to have been entered
without jurisdiction.
5
Exhibit
10.4
1.8 The
Escrow Agent shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting
to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
1.9 If
the
Escrow Agent reasonably requires other or further documents in connection with
this Agreement, the necessary parties hereto shall join in furnishing such
documents.
1.10 It
is
understood and agreed that should any dispute arise with respect to the delivery
and/or ownership or right of possession of the documents, the Escrow Shares
held
by the Escrow Agent hereunder, the Escrow Agent is authorized and directed
in
the Escrow Agent's sole discretion (a) to retain in the Escrow Agent's
possession without liability to anyone all or any part of said documents, the
Escrow Shares until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but the Escrow Agent shall be under
no
duty whatsoever to institute or defend any such proceedings or (b) to deliver
the Escrow Shares and any other property and documents held by the Escrow Agent
hereunder to a state or federal court having competent subject matter
jurisdiction and located in the State of New York in accordance with the
applicable procedure therefor.
ARTICLE
2
MISCELLANEOUS
2.1
The
Escrow Shares, if released to the Purchaser, upon such release, shall have
the
same demand and piggy-back registration rights as those granted to the shares
of
common stock underlying the warrants issued to the Purchaser pursuant to the
Purchase Agreement and as set forth in the Registration Rights
Agreement.
2.2 No
waiver
of any breach of any covenant or provision herein contained shall be deemed
a
waiver of any preceding or succeeding breach thereof, or of any other covenant
or provision herein contained. No extension of time for performance of any
obligation or act shall be deemed any extension of the time for performance
of
any other obligation or act.
2.2 This
Agreement shall be binding upon and shall inure to the benefit of the permitted
successors and assigns of the parties hereto.
2.3
This
Agreement is the final expression of, and contains the entire agreement between,
the parties with respect to the subject matter hereof and supersedes all prior
understandings with respect thereto. This Agreement may not be modified,
changed, supplemented or terminated, nor may any obligations hereunder be
waived, except by written instrument signed by the parties to be charged or
by
its agent duly authorized in writing or as otherwise expressly permitted
herein.
6
Exhibit
10.4
2.4
Whenever
required by the context of this Agreement, the singular shall include the plural
and masculine shall include the feminine. This Agreement may be executed in
two
or more counterparts, all of which taken together shall constitute one
instrument. Execution and delivery of this Agreement by exchange of facsimile
copies bearing the facsimile signature of a party shall constitute a valid
and
binding execution and delivery of this Agreement by such party. Such facsimile
copies shall constitute enforceable original documents.
2.5 The
parties hereto expressly agree that this Agreement shall be governed by,
interpreted under, and construed and enforced in accordance of the laws of
the
State of New York. The parties agree that any dispute arising under or with
respect to or in connection with this Agreement, whether during the term of
this
Agreement or at any subsequent time, shall be resolved fully and exclusively
in
the federal or state courts resident in New York County, New York.
2.6 Any
notice required or permitted hereunder shall be given in a manner provided
in
the Notice Section contained in the Purchase Agreement to the address or contact
information for the Parties set forth therein or, in the case of notice to
the
Escrow Agent, shall be sent by commercial overnight courier such as UPS or
Fedex
to the Escrow Agent at the address first written above.
2.7 By
signing this Agreement, the Escrow Agent becomes a party hereto only for the
purpose of this Agreement; the Escrow Agent does not become a party to the
Purchase Agreement or any related agreements.
2.8 Each
party acknowledges and agrees that this Agreement shall not be deemed prepared
or drafted by any one party. In the event of any dispute between the Parties
concerning this Agreement, the Parties agree that any rule of construction,
to
the effect that any ambiguity in the language of the Agreement is to be resolved
against the drafting party, shall not apply.
(Signature
Page to Follow)
7
Exhibit
10.4
IN
WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date
first set forth above.
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Executed:
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International
Imaging Systems, Inc.
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Name:
Gao Xincheng
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Title:
Chief Executive Officer
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By:
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Escrow
Agent
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By:
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8
Exhibit
10.4
Exhibit
A
9
Exhibit
10.4
Exhibit
B
FORM
OF ESCROW RELEASE NOTICE
Date:
Escrow
Agent
Dear
Escrow Agent:
In
accordance with the terms of Article 1 of the Escrow Agreement dated as of
October __, 2007 (the "Escrow Agreement"), by and among International Imaging
Systems, Inc. (the “Company”), and each of the Purchasers whose names are set
forth on Exhibit A to the Series A Convertible Preferred Stock Purchase
Agreement dated October __, 2007 (the “Purchasers,”
and
together with the Company, the “Parties”), the Company hereby notifies the
Escrow Agent of the following:
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1.
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The
Audit Date was ___________ __, 200__; and
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2.
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The
Company achieved __% of the Performance Threshold.
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Accordingly,
please distribute the Escrow Shares as follows:
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Recipient
Information
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Amount
of Escrow Shares to be delivered
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Very
truly yours,
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INTERNATIONAL
IMAGING SYSTEMS, INC.
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By:
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Name:
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Title:
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10
