ESCROW AGREEMENT
This
Escrow Agreement (this “Agreement”), entered
into as of March 29, 2010, is by and among Granto, Inc., a
Nevada corporation (the “Company”), certain
officers of the Company who are a signatory hereto (“Management”) and The
Xxxxx Law Group (hereinafter referred to as the “Escrow
Agent”).
BACKGROUND
This
Agreement is made pursuant to the Series A Preferred Stock Purchase Agreement,
dated as of the date hereof (the “Purchase Agreement”),
between the Company and each Investor listed on the signature page thereto (the
“Investors”). All
capitalized terms used, but not defined herein, shall have the meanings assigned
them in the Purchase Agreement.
Pursuant
to the Purchase Agreement, each Investor has agreed to purchase from the
Company, and the Company has agreed to sell to each Investor, the Company’s
Series A Preferred Stock and Warrants. Under the terms of the
Purchase Agreement, Management is required to deposit shares of Common Stock
into escrow equal to the number of shares of Preferred Stock issued to the
Investors. The Company, Management and the Investors have agreed to
establish an escrow on the terms and conditions set forth in this
Agreement. 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 promises of the parties and the terms and
conditions hereof, the parties hereby agree as follows:
1. Appointment of Escrow
Agent. The Company and
Management hereby appoint the Escrow Agent as escrow agent to act in accordance
with the Purchase Agreement and the terms and conditions set forth in this
Agreement, and the Escrow Agent hereby accepts such appointment and agrees to
act in accordance with such terms and conditions.
2. Establishment of
Escrow. On or before the
date of this Agreement, Management shall deposit an aggregate of 2,768,721
shares of Common Stock (the “Shares”) with the
Escrow Agent. The certificates for the Shares will be registered in
the name of Management and will be accompanied by duly endorsed and guaranteed
stock power. All certificates for Shares to be provided to the Escrow
Agent shall be deposited with the Escrow Agent. The Escrow Agent will
be deemed the record holder of the Shares until disbursement and will be
entitled to receive dividends and other distributions thereon and will be
entitled to vote the Shares in accordance with the Investors’
instructions. Escrow Agent is under no obligation to invest any such
dividends or other distributions; provided, however, the Escrow Agent shall
provide for the safekeeping of any money or property received by it as a
distribution or dividend.
3. Segregation. The Shares shall
be segregated from the assets of the Escrow Agent and held in trust for the
benefit of Management and the Investors in accordance herewith.
4. Receipt. Subject to
Sections 2 and 7(c) hereof, the Escrow Agent shall have no liability for any
loss resulting from the deposit of the Shares.
5. Transfer of the
Shares.
(a) Definitions. In
addition to the terms defined elsewhere in this Agreement the following terms
have the meanings set forth in this Section 5(a):
“Fiscal Year 2009 Performance
Threshold” means the target amounts of (a) $13.0 million for the
Company’s audited Net Income for the fiscal year ended December 31, 2009 and (b)
$0.54 per share for the Company’s audited Net Income per share.
“Fiscal Year 2010 Performance
Threshold” means the target amounts of (a) $14.8 million for the
Company’s audited Net Income for the fiscal year ended December 31, 2010 and (b)
$0.62 per share for the Company’s audited Net Income per share.
“Net Income” for any
period means the consolidated net income of the Company and its subsidiaries
calculated in accordance with United States generally accepted accounting
principles consistently applied; plus, to the extent such amounts were deducted
in the calculation of consolidated net income, the amount of any non-cash
extraordinary charges relating solely to (a) the release of the Shares from
Escrow or (b) the value of the beneficial conversion feature of the Series A
Preferred Stock of the Company issued pursuant to the Purchase
Agreement. Net Income for any period shall also not include any
charges or additions to net income of the Company in any period as a result of
any fluctuation in the value of the Company’s Common Stock.
(b) Prior
to April 15, 2010 with respect to the fiscal year ended December 31, 2009 and
within 105 days after the end of the fiscal year ending December 31, 2010,
respectively, the Company shall provide to the Investors a written report of its
audited Net Income amount and per share Net Income amounts to the Investors and
Escrow Agent. If the Company does not achieve at least 100% of either
amount set forth in the Fiscal Year 2009 Performance Threshold, or the Fiscal
Year 2010 Performance Threshold, as the case may be, the written report for the
applicable fiscal year shall be accompanied by a written notice from the Company
which shall set forth the percentage amount by which the Company failed to
achieve such amounts (the percentage amount of the deficit for such fiscal year
is referred to as the “Shortfall”).
(c) If
the Company does not achieve at least 50% of either amount set forth in the
Fiscal Year 2009 Performance Threshold, then the Escrow Agent shall transfer
100% of the Shares to the Investors pro rata based on the number of shares of
Preferred Stock purchased by Investor under the Purchase Agreement and still
beneficially owned by such Investor at such date.
(d) If
the Company achieves at least 50%, but less than 100% of either amount set forth
in the Fiscal Year 2009 Performance Threshold, then the Escrow Agent shall
transfer an amount of the Shares to the Investors equal to the product obtained
by multiplying (i) two times the Shortfall by (ii) the total number of Shares
held in escrow. Such Shares will be transferred pro rata based on the
number of shares of Preferred Stock purchased under the Purchase Agreement by
the Investor and still beneficially owned by such Investor at such
date. For example, if the Company achieves 80% of one of the amounts
set forth in the Fiscal Year 2009 Performance Threshold and thus reports a 20%
Shortfall, then the Escrow Agent shall transfer 40% of the Shares then held in
escrow to the Investors.
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(e) If
any escrow Shares are delivered to Investors pursuant to Sections 5 (c) or (d),
Management shall within 5 business days of the Company’s report and notice
delivered pursuant to Section 5(b), replenish the escrow account with an equal
number of shares of Common Stock so that upon such replenishment the Escrow
Agent shall again hold in escrow a number of shares of Common Stock equal to one
hundred (100%) percent of the shares of Preferred Stock purchased by the
Investors under the Purchase Agreement. Such additional shares of
Common Stock together with the original Shares, if any, remaining in the escrow
will be deemed to be “Shares” for purposes of this Agreement.
(f) If
the Company does not achieve at least 50% of either amount set forth in the
Fiscal Year 2010 Performance Threshold, then the Escrow Agent shall transfer
100% of the Shares to the Investors pro rata based on the number of shares of
Preferred Stock purchased under the Purchase Agreement and still beneficially
owned by such Investor at such date.
(g) If
the Company achieves at least 50%, but less than 100% of either amount set forth
in the Fiscal Year 2010 Performance Threshold, then the Escrow Agent shall
transfer an amount of the Shares to the Investors equal to the product obtained
by multiplying (i) two times the Shortfall by (ii) the total number of Shares
held in escrow (or which should be held in escrow pursuant to the replenishment
provisions set forth in Section 5(e)). Such Shares will be transferred pro rata
based on the number of shares of Preferred Stock purchased under the Purchase
Agreement and still beneficially owned by such Investor at such
date. For example, if the Company achieves 80% of one of the amounts
set forth in the Fiscal Year 2010 Performance Threshold and thus reports a 20%
Shortfall, then the Escrow Agent shall disburse 40% of the Shares to the
Investors.
(h)
Escrow Agent shall transfer the Shares to Investors within 5 business days of
the receipt of such Shares from the Company’s transfer agent following the
receipt of written instructions from each Investor specifying the amount of
Shares to be delivered to such Investor pursuant to the report and notice
delivered pursuant to Section 5(b). Any Shares remaining in the
escrow after the distribution, if any, to the Investors following the delivery
of the report and notice pursuant to Section 5(b) for Fiscal Year ending
December 31, 2010, will be returned to Management (within 5 business days after
the distribution to Investors if any, or within 5 business days after delivery
of the report if there is no Shortfall) pro rata to amount delivered into
escrow. The Escrow Agent will not be responsible for calculating the
number of Shares to be delivered to Investors and Management and will rely on
the written instructions from the Investors and Management.
(i) This
Escrow Agreement shall terminate and be of no further force or effect on the
transfer of all Shares.
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6. Registration Rights and
Procedures.
(a) Registration on Request of
Investors.
(i) Request. Investors
may request in writing no earlier than 30 days prior to the delivery of Shares
to Investors that the Company effect the registration for resale under the
Securities Act of all or part of Investors' Shares on a resale registration
statement on Form S-1. Any such request will specify (a) the number of
Shares proposed to be sold and (b) the intended method of disposition
thereof. Subject to the other provisions of this Section 6(a),
the Company shall promptly and as expeditiously as possible, use its reasonable
best efforts to effect the registration under the Securities Act,
of:
(1) the
Shares that the Company has been so requested to register by Investors ("Investors Registrable
Securities");
(2) all
shares of the same class(es) or series as the Investors Registrable Securities
that have been requested to be included by the Company in such registration
("Company Registrable
Securities"); and
(3) all
shares of the same class(es) or series as the Investors Registrable Securities
which have been requested to be included by holders of Registrable Securities
other than Investors ("Other Holder Registrable
Securities").
(ii)
Limited Registration
Rights. The Company shall be required to effect up to two (2) requests by
Investors for the registration of Registrable Securities on Form S-1 pursuant to
this Section 6(a).
(iii)
Expenses;
Indemnification. The Company will pay all Registration Expenses in
connection with registrations pursuant to this Section 6(a) and the
indemnification provisions of Section 7.1(f) of the Purchase Agreement shall
apply to all registrations pursuant to this Section 6(a).
(iv)
Effective Registration
Statement. A registration requested pursuant to this Section 6(a)
will not be deemed to have been effected:
(1)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Investors Registrable Securities covered by
such registration statement until the earlier of (x) such time as all of
such Investors Registrable Securities have been disposed of in accordance with
the intended methods of disposition thereof set forth in such registration
statement or (y) 180 days after the effective date of such registration
statement; or
(2) if
after it has become effective, the registration statement is interfered with by
any stop order, injunction or other order or requirement of the SEC or other
governmental agency or authority and is not thereafter effective.
(v)
Postponements in
Requested Registrations.
(1) If
upon receipt of a registration request, the Company shall furnish to Investors a
certificate signed by the CEO or any other Senior Officer stating that the
Company has pending or in process a material transaction (the "Transaction Delay
Notice"), the disclosure of which would, in the good faith judgment of
the Board, after consultation with its outside counsel, materially and adversely
affect such transaction and that the filing of a registration statement would
require disclosure of such material transaction within 48 hours of such receipt
of such request, the Company shall not be required to comply with its
obligations under Section 6(a)(i) until 60 days after Investors' receipt of
such notice.
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(2)
Notwithstanding the foregoing provisions of this Section 6(a)(v), the Company
shall be entitled to serve only one Transaction Delay Notice within any period
of 365 consecutive days.
(b)
Incidental
Registrations.
(i) Right to
Piggyback. If the Company or any other person that has demand
registration rights (a "Third Party
Registrant") at any time after the delivery of any Shares to the
Investors proposes to register equity securities under the Securities Act (other
than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own account,
in a manner which would permit registration of the Shares for sale to the public
under the 1933 Act, the Company will, at each such time, give prompt written
notice to Investors of its intention to do so and of Investors' rights under
this Agreement. Upon the written request of Investors made within
15 days after the receipt of any such notice (which request shall specify
the Shares intended to be disposed of by Investors), the Company will use its
reasonable best efforts to effect the registration under the 1933 Act of all
Shares which the Company has been so requested to register by Investors; provided, however, that
(a) if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company or such Third
Party Registrant shall determine for any reason not to proceed with the proposed
registration of the securities to be sold by it, the Company may, at its
election, give written notice of such determination to Investors and, thereupon,
shall be relieved of its obligation to register any Shares in connection with
such terminated registration (but not from its obligation to pay the
Registration Expenses in connection therewith), and (b) if such
registration involves an underwritten offering, Investors shall enter into an
agreement with the underwriters to sell their Shares to the underwriters
selected by the Company or such Third Party Registrant on substantially the same
terms and conditions as apply to the Company or such Third Party Registrant,
with such differences, including any with respect to indemnification and
liability insurance, as may be customary or appropriate in combined primary and
secondary offerings. Notwithstanding the foregoing, if a registration requested
pursuant to this Section 6(b) involves an underwritten public offering,
Investors may elect, in writing prior to the effective date of the registration
statement filed in connection with such registration, not to register all or any
part of their Shares in connection with such registration. The registrations
provided for in this Section 6(b) are in addition to, and not in lieu of,
registrations made in accordance with Section 6(a).
(ii)
Expenses;
Indemnification. The Company will pay all Registration Expenses in
connection with each registration of Shares requested pursuant to this
Section 6(b) and the indemnification provisions of Section 7.1(f) of the
Purchase Agreement shall apply to all registrations pursuant to this
Section 6(b).
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7.
Interpleader;
Exculpation and Indemnification of Escrow Agent.
(a) Should
any controversy arise among the parties hereto with respect to this Agreement or
with respect to the right to receive the 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 the Escrow
Agent. If the Escrow Agent is directed to institute an appropriate
interpleader action, it shall institute such action not prior to thirty (30)
days after receipt of such letter of direction and not later than sixty (60)
days after such date. Any interpleader action instituted in
accordance with this Section 6 shall be filed in any court of competent
jurisdiction in New York, New York, and the portion of the Shares in dispute
shall be deposited with the court and in such event the Escrow Agent shall be
relieved of and discharged from any and all obligations and liabilities under
and pursuant to this Agreement with respect to that portion of the
Shares.
(b) 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 or depositing the
Shares. 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.
(c) 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 the 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.
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(d) The Escrow Agent will be
indemnified and held harmless by the Company and Management jointly and
severally 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 the Escrow Agent hereunder;
except, to the extent that the Escrow Agent is guilty of willful misconduct,
fraud or gross negligence under this Agreement. For this purpose, the
term “attorneys' fees” includes fees payable to any counsel retained by the
Escrow Agent in connection with its services under this Agreement and, with
respect to any matter arising under this Agreement as to which the Escrow Agent
performs legal services, its standard hourly rates and charges then in
effect. 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 7 shall
survive the termination of this Agreement.
8. Resignation of Escrow
Agent. At any time, upon
ten (10) days’ written notice to the parties hereto, 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 parties hereto all monies and
property 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 parties hereto shall have failed to appoint a successor escrow agent,
the Escrow Agent may interplead the Shares into the registry of any court having
jurisdiction.
9. 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.
10. Escrow Agent
Fees. The Company
agrees to pay the Escrow Agent a non-refundable fee of $2,500 per year for its
services under this Agreement, which fee is payable in advance. Any
out-of-pocket fees will be payable by the Company upon invoice.
11. 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.
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12. Notice. All notices,
requests, demands and other communications under this Agreement shall be in
writing and shall be deemed to have been duly given (a) on the date of service
if served personally on the party to whom notice is to be given, (b) on the day
of transmission if sent by facsimile/email transmission to the facsimile
number/email address given below, and telephonic confirmation of receipt is
obtained promptly after completion of transmission, (c) on the day after
delivery to Federal Express or similar overnight courier or the Express Mail
service maintained by the United States Postal Service or (d) on the fifth day
after mailing, if mailed to the party to whom notice is to be given, by first
class mail, registered or certified, postage prepaid, and properly addressed,
return receipt requested, to the party as follows:
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If
to the Escrow Agent:
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The
Xxxxx Law Group
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000
Xxxxxxxxxx Xxxxxx, Xxxxx 0000
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Xxx
Xxxxxxxxx, Xxxxxxxxxx 00000
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Attention: Xxxx
X. Xxxxx, Esq.
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Facsimile: (000)
000-0000
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If
to the Company:
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Dongdu
Room 321
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Xx.
000 Xxxxxxxxxxx Xxxx
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Xxxxxxxxx
Xxxx,
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Xxxxxx’s
Republic of China 510075
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Attention:
Xxxxxx Xxxx, President
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Fax:
000-00-00-0000-0000
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If
to Management:
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Xxxxxx
Xxxx 000
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Xx.
000 Xxxxxxxxxxx Xxxx
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Guangzhou
City,
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People’s
Republic of China 510075
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Attention:
Xxxxxx Xxxx
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Fax:
000-00-00-0000-0000
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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;
Facsimile Execution. 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.
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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 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.
15. APPLICABLE LAW. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, USA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED
THEREIN. THE PARTIES EXPRESSLY WAIVE SUCH DUTIES AND LIABILITIES, IT
BEING THEIR INTENT TO CREATE SOLELY AN AGENCY RELATIONSHIP AND HOLD THE ESCROW
AGENT LIABLE ONLY IN THE EVENT OF ITS WILLFUL MISCONDUCT, FRAUD, OR GROSS
NEGLIGENCE. ANY LITIGATION CONCERNING THE SUBJECT MATTER OF THIS
AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE COURTS OF NEW YORK COUNTY, NEW
YORK, USA, 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.
[Signature Page
Follows]
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IN WITNESS WHEREOF, the parties have
duly executed this Agreement as of the date first above written.
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The
Company:
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By:
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/s/
Xxxxxx Xxxxx
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Name:
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Xxxxxx
Xxxx
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Title:
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President
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Management:
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/s/
Xxxxxx Xxxx
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Name:
Xxxxxx
Xxxx
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Escrow
Agent:
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THE
XXXXX LAW GROUP
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By:
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/s/ Xxxx
Xxxxx
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Name:
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Xxxx
Xxxxx
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Title:
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Partner
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