Unassociated Document


    

      Exhibit
        10.4

    

     

    ESCROW
      AGREEMENT

    


    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 17 State Street, Suite 1610, New York, NY 10004 (the
      “Escrow Agent”).

    


    RECITALS:

    


    
      	 	
              (1)

            	
              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; 

            


    

    


    
      	 	
              (2)

            	
              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; 

            


    

    


    
      	 	
              (3)

            	
              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. 

            


    

    


    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 Leser Hunter Taubman & Taubman 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

    


    
      	 	
              (a)

            	
              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; 

            


    

    
      	 	 	 


      	 	
              (b)

            	
              The
                Escrow Agent shall hold the Escrow Shares in the Escrow Account at
                all
                times until such Escrow Shares are disbursed in accordance herewith;
                

            


      	 	 	 


    

    
      	 	
              (c)

            	
              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.

            


    

    


    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: 

    


    
      	 	
              (a)

            	
              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”); 

            


    

    
      	 	 	 


      	 	
              (b)

            	
              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”).

            


      	 	 	 


    

    
      	 	
              (c)

            	
              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.

            


    

    
      	 	 	 


      	 	
              (d)

            	
              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.

            


    

     

    
      
        
        

      

      
        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”):


    


    
      	 	
              (a)

            	
              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; 

            


    

    


    
      	 	
              (b)

            	
              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;

            


    

    


    
      	 	
              (c)

            	
              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;

            


    

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      Exhibit
        10.4

    

     

    
      	 	
              (d)

            	
              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; 

            


    

    


    
      	 	
              (e)

            	
              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, 

            


    

    


    
      	 	
              (f)

            	
              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.

            


    

    


    
      	 	
              (g)

            	
              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.

            


    

    


    
      	 	
              (h)

            	
              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 

            


    

    


    
      	 	
              (i)

            	
              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. 

            


    

    


    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 Leser Hunter Taubman & Taubman 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.

     

    
      	
              Executed:

            	 	 	 
	 	 	 	 
	
              International
                Imaging Systems, Inc.

            	 	 	 
	 	 	 	 
	 	 	 	 
	By:	 	 	
            
	
              
                

              

              Name:
                Gao Xincheng

            	 	 	
            
	
              Title:
                Chief Executive Officer

            	 	 	
            


    

     

     

    
      	
               

            	 	 	 
	 	 	 	 
	
            	 	 	
            
	
              

              By:
                

            	 	 	
            
	
            	 	 	
            
	 	 	 	 
	
              Escrow
                Agent

            	 	 	 
	 	 	 	 
	 	 	 	 
	
              

              By:
                

            	 	 	 


    

    

      
        
          
          

        

        
          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: 

     

    
      	 	
              1.

            	
              The
                Audit Date was ___________ __, 200__; and


            


    

     

    
      	 	
              2.

            	
              The
                Company achieved __% of the Performance Threshold.
                

            


    

     

    Accordingly,
      please distribute the Escrow Shares as follows: 

     

    
      	
              Recipient
                Information

               

            	 	
              Amount
                of Escrow Shares to be delivered

            


    

     

     

    
      	
              Very
                truly yours,

            	 	 	 
	 	 	 	 
	
              INTERNATIONAL
                IMAGING SYSTEMS, INC.

            	 	 	 
	 	 	 	 
	 	 	 	 
	
              By:

            	 	 	
            
	
              
                

              

              Name:

            	 	 	
            
	
              
                

              

              Title:

            	 	 	
            
	
              
                

              

            	 	 	 


    

     

    
      
        
        

      

      
        10