China Agritech, Inc. - Exhibit 10.3




 



ESCROW AGREEMENT 


This Escrow Agreement (the "Agreement"), dated
effective as of the last date set forth opposite the respective signatories
hereto, is entered into by and among China Agritech, Inc., a Delaware
corporation (the "Company"), each of the parties listed below who were Investors
to the private offering of securities of the Company, Chang Yu, in his
individual capacity ("Chang"), and Securities Transfer Corporation (hereinafter
referred to as "Escrow Agent"). 

WHEREAS, each of the Investors has entered
into a Stock Purchase Agreement (the "SPA") evidencing their participation in
Company's private offering (the "Offering") of securities. As an inducement to
the Investors to participate in the Offering and as set forth in the SPA, Chang
agreed to place the "Escrow Shares" (as hereinafter defined) into escrow for the
benefit of the Investors in the event the Company failed to satisfy the
"Performance Thresholds" (as hereinafter defined). 

WHEREAS, pursuant to the requirements of the
SPA, the Company, Chang and the Investors have agreed to establish an escrow on
the terms and conditions set forth in this Agreement; 

WHEREAS, the Escrow Agent has agreed to act as escrow agent
pursuant to the terms and conditions of this Agreement; and 

WHEREAS, all capitalized terms used but not defined herein
shall have the meanings assigned them in the SPA; 

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 Escrow Agent.
The Investors, Chang and the Company hereby appoint Securities Transfer
Corporation as Escrow Agent to act in accordance with the terms and conditions
set forth in this Agreement, and Escrow Agent hereby accepts such appointment
and agrees to act in accordance with such terms and conditions. 


2. Establishment of Escrow.
Upon the execution of this Agreement, Chang shall deliver to the Escrow Agent a
stock certificate evidencing 544,096 shares (the "Escrow Shares") of the
Company's common capital stock along with a stock power executed in blank.



3. Representations of Chang.
Chang hereby represents and warrants to the Investors as follows: 



  (i) The Escrow
  Shares are validly issued, fully paid and nonassessable shares of the Company,
  and free and clear of all pledges, liens and encumbrances. 

  
  (ii) 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 Chang
  pursuant to the terms of any indenture, mortgage, deed of trust or other
  agreement or instrument binding upon Chang, other than such breaches, defaults
  or liens which would not have a material adverse effect taken as a whole. 




4. Disbursement of Escrow Shares. 
COMPANY advised the Investors that in the event the consolidated
financial statements of the Company reflect less than $7 million of After-Tax
Net Income for the fiscal year ending December 31, 2006 (the "First Guaranteed
NI"), Chang Yu agrees to transfer to the Investors on a pro rata basis for no
purchase price that certain number of shares of the Company's Common Stock which
represent 5% of the total Common Stock that Chang Yu owns directly or indirectly
as of August 30, 2005, i.e., 544,096 shares of the Company's Common Stock. In
the event the consolidated financial statements of the Company reflect between
$7 million and $7.5 million of After-Tax Net Income for the fiscal year ending
December 31, 2006 (the "Second Guaranteed NI"), Chang Yu agrees to transfer to
the Investors on a pro rata basis for no purchase price that certain number of
shares of the Company's Common Stock which represent 2.5% of the total Common
Stock that Chang Yu owns directly or indirectly as of August 30, 2005, i.e.,
272,048 shares of the Company's Common Stock. Nonrecurring expenses of the
Company shall not be deducted from After-Tax Net Income for the purposes of
calculating the First Guaranteed NI or the Second Guaranteed NI. In the event
that either the First Guaranteed NI or the Second Guaranteed NI is not achieved
based on the Company's audited financial statements for the period as filed with
the U.S. Securities and Exchange Commission ("SEC"), the Company's attorney,
Charles Law of King and Wood LLP ("Law"), shall provide written instruction to
the Escrow Agent instructing the Escrow Agent to issue and deliver certificates
evidencing certain number of shares of the Escrow Shares, according to the
formula of the SPA, to the Investors, on a pro rata basis, within ten (10)
business days of the date the audit report for the period is filed with the SEC.
The Escrow Agent need only rely on the letter of instruction from LAW in this
regard. If the consolidated financial statements of the Company reflect greater
than $7.5 million of After-Tax Net Income for the fiscal year ending December
31, 2006, Law shall provide written instruction to the Escrow Agent for the
release of the Escrow Shares to Chang. 

5. Duration. This
Agreement shall terminate on the sooner of the distribution of all the Escrow
Shares or the 10th business day following the filing of the Company's
audited financial statements for fiscal 2006 with the SEC. 


6. 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, Escrow
Agent shall have the right to consult counsel and/or to institute an appropriate
interpleader action to determine the rights of the parties. 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 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 Dallas County, Texas,
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. 


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7. 
Exculpation and Indemnification of Escrow Agent. 

(a) 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. 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. Escrow Agent will have no duties or
responsibilities other than those expressly set forth herein. Escrow Agent will
be under no liability to anyone by reason of any failure on the part of any
party hereto (other than 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 Escrow
Agent pursuant to the terms of this Agreement, 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. 



(b) 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 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 Texas upon fiduciaries.



(c) Escrow Agent
will be indemnified and held harmless, jointly and severally, by the Company and
Chang from and against any expenses, including reasonable attorneys' fees and
disbursements, damages or losses suffered by 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 Escrow Agent is guilty of willful misconduct, fraud or gross negligence
under this Agreement, then 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 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, 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. Compensation of Escrow Agent. The
Company will pay Escrow Agent $1,500 for all services rendered by Escrow Agent
hereunder. 


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9. Resignation of Escrow Agent.
At any time, upon ten (10) days' written notice to the Company, Escrow Agent may
resign and be discharged from its duties as Escrow Agent hereunder. As soon as
practicable after its resignation, 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 Escrow Agent, the Company shall have failed to
appoint a successor escrow agent, Escrow Agent may interplead the Escrow Shares
into the registry of any court having jurisdiction. 


10. Records. 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, Escrow Agent shall
provide the parties hereto, as the case may be, with a complete copy of such
records, certified by 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 Escrow Agent. 


11. 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.



12. 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. 


13. 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. 


14. APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED THEREIN,
EXCEPT THAT THE PORTIONS OF THE TEXAS TRUST CODE, SECTION 111.001, ET SEQ. OF
THE TEXAS PROPERTY CODE, CONCERNING FIDUCIARY DUTIES AND LIABILITIES OF TRUSTEES
SHALL NOT APPLY TO THIS AGREEMENT. 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 


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NEGLIGENCE. ANY LITIGATION CONCERNING THE SUBJECT MATTER OF
THIS AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE COURTS OF DALLAS COUNTY,
TEXAS, AND ALL PARTIES CONSENT TO THE EXCLUSIVE JURISDICTION AND VENUE OF THOSE
COURTS. 


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


16. 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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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date set forth opposite their respective names. 


	 	 	Company:
	 	 	China Agritech, Inc.
	 	 	 
	 	 	/s/ Chang Yu
	 	 	By: Chang Yu
	 	 	Its: CEO and President
	 	 	Dated: January 11, 2006
	 	 	 
	 	 	/s/ Chang Yu
	 	 	Chang Yu
	 	 	Dated: January 11,
    2006
	 	 	 
	 	 	 
	 	Escrow Agent:	 
	 	Securities Transfer
    Corporation	 
	 	 	 
	 	 	 
	 	By: /s/ Kevin Halter
    Jr.	 
	 	Its: President	 
	 	Dated: ______________	 
	 	 	 
	 	 	INVESTORS:
	 	 	 
	 	 	PINNACLE CHINA FUND,
    L.P.
	 	 	 
	 	 	By: /s/ Barry M. Kitt
	 	 	Name: Barry M. Kitt
	 	 	Title: Sole Member,
    Kitt China Management,
	 	 	L.L.C.,
	 	the Manager of
    Pinnacle China Management, L.L.C.,	 
	 	the General Partner of
    Pinnacle China Advisors, L.P.,	 
	 	the General Partner of
    Pinnacle China Fund, L.P.	 
	 	 	 
	 	 	 
	 	 	Ardsley Partners
    Offshore Fund, Ltd.



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	 	By: /s/ Steven Napoli
	 	 
	 	   Name:
    Steven Napoli
	 	   Title:
    Partner/Agent
	 	 
	 	Ardsley Partners Fund
    II, L.P.
	 	 
	 	By: /s/ Steven Napoli
	 	 
	 	   Name:
    Steven Napoli
	 	   Title:
    Partner
	 	 
	 	Ardsley Partners
    Institutional Fund, L.P.
	 	 
	 	By: /s/ Steven Napoli
	 	 
	 	   Name:
    Steven Napoli
	 	   Title:
    Partner
	 	 
	 	Jayhawk China Fund
    (Cayman), Ltd.
	 	 
	 	By: /s/ Marcey Berges
	 	 
	 	   Name:
    Marcey Berges
	 	   Title:
    CFO
	 	 
	 	Renaissance U.S.
    Growth Investment Trust PLC
	 	 
	 	By: /s/ Russell
    Cleveland
	 	 
	 	   Name:
    Russell Cleveland
	 	 
	 	   Title:
    President
	 	RENN Capital Group,
    Inc., Investment Manager
	 	 
	 	BFS U.S. Special
    Opportunities Trust PLC
	 	 
	 	By: /s/ Russell
    Cleveland
	 	 
	 	   Name:
    Russell Cleveland
	 	 
	 	   Title:
    President
	 	RENN Capital Group,
    Inc., Investment Adviser
	 	 
	 	Gary C. Evans




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	 	Signature: /s/ Gary C. Evans
	 	 
	 	Daniel Conwill IV
	 	 
	 	Signature: /s/ Daniel Conwill IV
	 	 
	 	Chet Morrison
	 	 
	 	Signature: /s/ Chet Morrison
	 	 
	 	David Kenkel
	 	 
	 	Signature: /s/ David Kenkel
	 	 
	 	George Resta
	 	 
	 	Signature: /s/ George Resta
	 	 
	 	Bob Jackson
	 	 
	 	Signature: /s/ Bob Jackson
	 	 
	 	Tom Matava
	 	 
	 	Signature: /s/ Tom Matava
	 	 
	 	Carolyn Prahl
	 	 
	 	Signature: /s/ Carolyn Prahl
	 	 
	 	Jim Brown
	 	 
	 	Signature: /s/ Jim Brown




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	 	James Lynch
	 	 
	 	Signature: /s/ James Lynch
	 	 
	 	Edwin Young
	 	 
	 	Signature: /s/ Edwin Young
	 	 
	 	Mike Studer
	 	 
	 	Signature: /s/ Mike Studer
	 	 
	 	John Trescot Jr.
	 	 
	 	Signature: /s/ John Trescot Jr.
	 	 
	 	W. W. Gay
	 	 
	 	Signature: /s/ W. W. Gay
	 	 
	 	Harold E. Gear
	 	 
	 	Signature: /s/ Harold E. Gear
	 	 




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