Exhibit 10.2


 


ESCROW AGREEMENT


 


This Escrow Agreement (the “Agreement”) is entered into as of
October 14, 2003 (“Effective Date”), by and among Vital Living, Inc., a Nevada corporation (“Acquiror”),
all the Shareholders (the “Shareholders”) of Doctors for Nutrition, Inc.,
a California corporation (“DFN”), Mercantile
National Bank-California, (“Mercantile National  Bank”)
a California banking corporation, in its capacity as escrow agent hereunder
(the “Escrow Agent”),  and Bruce Howe,
in his capacity as the representative of the Shareholders (the “Shareholders’
Representative”) in connection with the transaction set forth in that
certain Stock Purchase Agreement (the “Purchase Agreement”), dated
October 14, 2003, by and among Acquiror
and the Shareholders.


 


RECITALS


 


This Agreement is being entered into in reference to the following
facts:


 


A.                                   Shareholders
and Acquiror have entered into the Purchase Agreement pursuant to which
Acquiror is acquiring all of the outstanding common stock of DFN (the “Transaction”),
all as further specified in the Purchase Agreement. Capitalized terms used in
this Agreement and not otherwise defined, shall have the meanings given them in
the Purchase Agreement.


 


B.                                     Pursuant
to the Purchase Agreement, a portion of the Purchase Price payable to the
Shareholders consisting of 825,000 shares of Acquiror stock is to be deposited
into an escrow fund (i) 175,000 shares (“Indemnification Shares”) of which will
secure certain of the indemnification obligations made by the Shareholders to
Acquiror under the Purchase Agreement and (ii) 650,000 shares (“Earnout
Shares”) of which are to be released to the Shareholders only if certain
financial targets of DFN are met, all on the terms and conditions set forth
therein and herein.


 


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


 


AGREEMENT


 


1.                                      Appointment;
Escrow Account.


 


(a)                                  Acquiror
and Shareholders each hereby appoint the Escrow Agent to act as escrow holder
for the Escrow Fund (as hereinafter defined) under the terms hereof.  Escrow Agent hereby accepts such appointment
and agrees to act as escrow holder for the Escrow Fund in accordance with the
terms hereof.


 


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(b)                                 Immediately
following Escrow Agent’s execution of this Agreement, Escrow Agent shall
establish an account at Mercantile National Bank (the “Escrow Account”)
for the purpose of receiving and holding the Escrow Fund.


 


(c)                                  The
Shareholders hereby appoint Bruce Howe to act as representative for the
Shareholders under the terms hereof and Bruce Howe hereby accepts such
appointment.


 


2.                                      Escrow
Fund; Administration


 


(a)                                  On
the Effective Date, Acquiror shall deposit with the Escrow Agent 825,000 shares
of the Acquiror’s Common Stock (the “Escrow Fund”).  The Escrow Fund shall be held at all time in
the Escrow Account as an escrow fund during the Escrow Period as defined in
Section 5 below and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party hereto.  Escrow Agent agrees to accept delivery of
the Escrow Fund and to hold such Escrow Fund in the Escrow Account subject to
the terms and conditions of this Agreement. 
Upon request from time to time, Escrow Agent shall notify Acquiror and
Shareholders’ Representative of the amount of the Escrow Fund then held in the
Escrow Account.


 


(b)                                 Escrow
Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall
treat such fund as an escrow fund in accordance with the terms of this
Agreement and not as the property of Acquiror and shall hold and dispose of the
Escrow Fund only in accordance with the terms hereof.


 


3.                                      Disbursement
of Earnout Shares From Escrow Fund. 
Escrow Agent shall administer the Earnout Shares in the Escrow Fund as
described in this Section 3.  On or
before December 30, 2004, Acquiror shall deliver to Escrow Agent
Purchaser’s Earnout Statement together with its calculation of the number of
Earnout Shares, if any, to be disbursed to the Shareholders and the number of
Earnout Shares, if any, to be returned to Acquiror (“Acquiror’s Earnout
Notice”).  Acquiror will deliver a copy
of Acquiror’s Earnout Notice to Shareholders’ Representative prior to or at the
same time it provides such information to Escrow Agent.  If Escrow Agent does not receive a Dispute
Notice from Shareholders’ Representative within 60 days after Escrow Agent has
received the Acquiror’s Earnout Notice, it shall disburse the Earnout Shares in
the manner specified in the Acquiror’s Earnout Notice.  If Escrow Agent does receive a Dispute
Notice from Shareholders’ Representative within 60 days after Escrow Agent has
received the Acquiror’s Earnout Notice, then Escrow Agent shall hold such Earnout
Shares until it receives a jointly signed instruction from Acquiror and
Shareholders’ Representative specifying the agreed upon disbursement or a copy
of the Expert Calculations in which case it shall make the disbursement of the
Earnout Shares based on the EBITDA Amount shown in the Expert Calculations as
follows: if the EBITDA Amount is (i) less than $200,000, then the entire
balance of the Earnout Shares being held by the Escrow Agent shall be released
to the Acquiror;  (ii) is at least
$200,001 but less than $250,000, then (1) 125,000 shares of the Earnout Shares
shall be released to the Shareholders, to be distributed among them in the
percentages set forth on Exhibit A attached hereto and (2) any remaining
Earnout Shares shall be released to the Acquiror; or  (iii) is at least $250,000, then a number of Earnout Shares equal
to the sum of (1) 250,000 shares of Earnout Shares plus (2) 10,000 additional
shares of Earnout Shares for


 


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each additional $10,000 of EBITDA Amount in excess of $250,000 (up to
the remaining balance of Earnout Shares) shall be released to the Selling
Shareholders, to be distributed among them in the percentages set forth on
Exhibit A attached hereto, and any remaining Earnout Shares shall be released
to the Acquiror.


 


4.                                      Release
of Indemnification Shares.


 


(a)                                  Upon
receipt by Escrow Agent at any time during the Escrow Period of a written
notice from Acquiror (a “Claim Notice”) stating that Acquiror has an
Indemnifiable Claim,  specifying the
nature and estimated amount of its Damages and the number of Indemnification
Shares to which it is entitled based on the amount of Damages, Escrow Agent
shall deliver to Acquiror out of the Indemnification Shares, unless an
objection is received from the Shareholders’ Representative within twenty days
of receipt of the Claim Notice, the number of Indemnification Shares specified
by Acquiror in the Claim Notice.


 


(b)                                 If
the Shareholders’ Representative objects in writing to any claim or claims made
in any Claim Notice, which objection shall be made to Escrow Agent and Acquiror
within 20 days after receipt of a Claim Notice by the Escrow Agent,  then Indemnification Shares equal to the
amount that would have been released to Acquiror if no objection by
Shareholders’ Representative was delivered to Escrow Agent shall not be
released by Escrow Agent from the Indemnified Shares until such time as (i)
joint written instructions (the “Joint
Instructions”), executed by the Shareholders’ Representative and
Acquiror, are delivered to the Escrow Agent directing the Escrow Agent to the
manner and amount of any disbursement to be made or (ii) a certified copy of a
judgment of a court of competent jurisdiction determining that an amount is due
to Acquiror is delivered to the Escrow Agent.


 


(c)                                  Copies
of all notices and other communications including a Claim Notice (or an
objection thereto) among the parties pursuant to this Section 4 shall be
delivered to each party hereto concurrently with delivery to any other party
hereto.


 


5.                                      Final
Release of Escrow Fund. 
Subject to the following requirements and extension for unresolved
disputes, the Escrow Fund shall remain in existence from the Effective Date
until the fifteen month anniversary of the date of the Effective Date (the “Escrow
Period”). Upon the expiration of the Escrow Period, the Escrow Fund shall
terminate with respect to all Escrow Shares then remaining in the Escrow Fund,
and all such remaining Escrow Shares shall be delivered to the Shareholders, to be distributed among them in the percentages
set forth on Exhibit A attached hereto, provided  however,
that an amount of the Escrow Fund which is necessary to satisfy any unsatisfied
claims specified in any Claim Notice delivered to Escrow Agent prior to the
expiration of such Escrow Period shall remain in the Escrow Fund (and the
Escrow Fund shall remain in existence) until such claims have been
resolved.  As soon as all such claims
have been resolved, Escrow Agent shall deliver to the relevant Shareholders the


 


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remaining Escrow Fund not required to satisfy such claims.


 


6.                                      DFN
Shareholders’ Representative.


 


Bruce Howe (“Howe”) shall be deemed the Shareholders’ Representative,
and Acquiror and Escrow Agent may rely on the statements and signature of Howe
as binding .  Notices or communications
to or from Howe shall constitute notice to or from the Shareholders.  A decision, act, consent or instruction of
Howe shall constitute a decision of the Shareholders and shall be final,
binding and conclusive with respect to the Escrow Fund.  Escrow Agent and Acquiror are hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of Howe.


 


7.                                      Escrow
Agent’s Duties.


 


(a)                                  Acquiror
shall indemnify Escrow Agent and hold it harmless from and against any fee,
loss, liability or expense (including reasonable attorney’s fees and expenses)
(a “Loss”) incurred by Escrow Agent arising out of or in connection with
the performance of its obligations in accordance with the provisions of this
Agreement or with the administration of its duties hereunder, unless such Loss
shall arise out of or be caused by Escrow Agent’s gross negligence, bad faith
or willful misconduct; provided however the indemnity agreement contained in
this Section 7(a) shall not apply to amounts paid in settlement of any
Loss if such settlement is effected without the consent of Acquiror and the
Shareholders’ Representative.


 


(b)                                 Acquiror
shall indemnify and hold Escrow Agent harmless from and against any taxes,
additions for late payment, interest, penalties and other expenses, that may be
assessed against Escrow Agent on any payment or other activities under this
Agreement unless any such tax, addition for late payment, interest, penalty or
other expense shall arise out of or be caused by the actions of, or a failure
to act by, Escrow Agent.


 


(c)                                  Escrow
Agent’s duties and obligations hereunder shall be determined solely by the
express provisions of this Agreement. Escrow Agent’s duties and obligations are
purely ministerial in nature, and nothing in this Agreement shall be construed
to give rise to any fiduciary obligations of Escrow Agent with respect to
Acquiror or Shareholders.  Escrow Agent
is not charged with any duties or responsibilities with respect to the Purchase
Agreement and shall not be concerned with the terms thereof. Escrow Agent shall
not be required to notify or obtain the consent, approval, authorization, or
order of court or governmental body to perform its obligations under this
Agreement, except as expressly provided herein.


 


(d)                                 In
the event of any disagreement or the presentation of any adverse claim or
demand in connection with the disbursement of the Escrow Fund, except as
otherwise provided herein, then Escrow Agent may, at its option, after
providing written notice to Acquiror


 


4

















 


and the Shareholders’ Representative of such disagreement or adverse
claim or demand, refuse to comply with any such claims or demands during the
continuance of such disagreement and may refrain from delivering any item
affected hereby, and in so doing, Escrow Agent shall not become liable to the
undersigned or to any other person, due to its failure to comply with such
adverse claim or demand.  If Acquiror
and/or the Shareholders’ Representative, as appropriate do not provide
satisfactory assurances to Escrow Agent that it may act in accordance with the
other provisions of this Agreement, Escrow Agent shall be entitled to continue,
without liability, to refrain and refuse to act until:


 


(i)                                     authorized
to disburse the Escrow Fund by an order from a court purporting to have
jurisdiction of the parties and the Escrow Fund, after which time Escrow Agent
shall be entitled to act in conformity with such order; or


 


(ii)                                  Escrow Agent (i)
shall have been notified that all differences shall have been adjusted by
agreement, and (ii) shall have been directed in writing to take certain actions
with respect to the Escrow Fund subject to the adverse claim or demand, signed
jointly or in counterpart by the Shareholders’ Representative and/or Acquiror
and by all persons making adverse claims or demands, at which time Escrow Agent
shall be protected in acting in compliance therewith.


 


At any time prior to Escrow Agent’s receipt of a court order or a
notice, as provided in clauses (i) or (ii) of this Section 7(d)
Escrow Agent may, but is not required to, file a suit in interpleader and
obtain an order from the court requiring the parties to interplead and litigate
in such court adverse claims or demands raised pursuant to this Section 7(d).  If such interpleader suit is brought, then
Escrow Agent shall ipso facto be
fully released and discharged from all obligations to further perform any and
all duties or obligations imposed upon it in relation to the disputed amount.
Acquiror agrees to reimburse Escrow Agent for all costs, expenses, and
reasonable attorney’s fees expended or incurred by Escrow Agent in connection
with such adverse claim or demand, the amount thereof to be fixed and judgment
thereof to be rendered by the court in such lawsuit.


 


(e)                                  Escrow
Agent shall not be liable to anyone whatsoever by any reason of error of
judgment or for any act done or step taken or omitted by them in good faith or
for any mistake of fact or law or for anything which they may do or refrain
from doing in connection herewith unless caused by or arising out of their own
gross negligence or willful misconduct. 
In no event shall Escrow Agent be liable for any indirect, special,
consequential damages, or punitive damages.


 


(f)                                    Escrow
Agent shall be entitled to rely on and shall be protected in acting in reliance
upon any instructions or directions furnished to it in writing or pursuant to
any provisions of this Agreement and shall be entitled to treat as genuine, and
as the document it


 


5

















 


purports to be, any letter, paper, or other document furnished to it
and believed by it to be genuine and to have been signed and presented by the
proper party or parties. The Shareholders’ Representative and Acquiror shall
not include Escrow Agent’s name in any document unless such document has been
approved in writing by the Escrow Agent, except with regard to those documents
pertaining to and referring to Escrow Agent’s functions pursuant to this
Agreement.


 


(g)                                 Escrow
Agent may resign at any time upon giving at least 30 days written notice to
Acquiror and the Shareholders’ Representative; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent, which shall be accomplished as follows: 
Acquiror and the Shareholders’ Representative shall use their best
efforts to mutually agree upon a successor agent within 30 days after receiving
such notice.  If the parties fail to
agree upon a successor escrow agent within such time, the Shareholders’
Representative shall have the right to appoint a successor escrow agent, such
appointment to be made in his reasonable best judgment.  The successor escrow agent selected in the
preceding manner shall execute and deliver an instrument accepting such
appointment and it shall thereupon be deemed Escrow Agent hereunder and it
shall without further acts be vested with all the estates, properties, rights, powers,
and duties of the predecessor Escrow Agent as if originally named as Escrow
Agent.  If no successor escrow agent is
named, Escrow Agent may apply to a court of competent jurisdiction for the
appointment of a successor escrow agent. 
Thereafter, the predecessor Escrow Agent shall be discharged from any
further duties and liabilities under this Agreement.


 


8.                                      Fees,
Expenses and Taxes.  Acquiror
shall pay to Escrow Agent, as compensation for its services hereunder the
following amounts (a) a $2,500 non-refundable start-up fee, payable upon Escrow
Agent’s execution of this Agreement; (a) an annual renewal fee of $1,000,
payable upon each anniversary of the date of this Agreement; and (c) a $50
escrow processing fee (for each receipt and disbursement of the Escrow Fund)
and all customary charges assessed by Mercantile National Bank in connection
with the Escrow Account, upon the Escrow Agent’s demand.  Upon demand, Acquiror will pay or reimburse
Escrow Agent for all expenses, disbursements and advances incurred or made at
the request of that party.  If Acquiror
fails to pay any fee or other sums owing to Escrow Agent hereunder when due
then Escrow Agent may pay out of and charge to the Escrow Fund all such fees
and sums.  Taxes incurred with respect
to the earnings of the Escrow Fund and payments made hereunder shall be borne
by the party to whom such earnings are distributed (or to be distributed) or to
whom such payment is made.


 


9.                                      Miscellaneous.


 


(a)                                  Voting.  All shares of the Acquiror Common Stock held
in the Escrow Account shall be voted by the applicable Shareholder as if such
shares had been distributed.


 


(b)                                  Amendments
and Waivers.  Any term of this
Agreement may be


 


6

















 


amended or waived with the written consent of the parties or their
respective successors and assigns.  Any
amendment or waiver effected in accordance with this Section 9(b) shall be
binding upon the parties and their respective successors and assigns.


 


(c)                                  Successors
and Assigns.  The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.


 


(d)                                  Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of
California regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof. 
If any portion of subsection (h) below shall be unenforceable, each
of the parties hereto irrevocably consents to the exclusive jurisdiction and
venue of the California or federal courts encompassing the city of Los
Angeles,  in connection with any matter
based upon or arising out of this Agreement or the matters contemplated herein,
agrees that process may be served upon them in any manner authorized by the
laws of the State of California for such persons and waives and covenants not
to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process.


 


(e)                                  Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.


 


(f)                                    Titles
and Subtitles.  The titles and
subtitles used in this Agreement are used for convenience only and are not
to be considered in construing or interpreting this Agreement


 


(g)                                 Notices.  Any notice required or permitted by this
Agreement shall be in writing and shall be deemed sufficient upon receipt, when
delivered personally or by courier, overnight delivery service or confirmed
facsimile addressed to the party to be notified at such party’s address or
facsimile number as set forth below, or as subsequently modified by written
notice.


 


	
  If to the Acquiror:

  	
   

  	
  5080 N. 40th STREET

  
	
   

  	
   

  	
  SUITE 105

  
	
   

  	
   

  	
  PHOENIX, AZ 85018-2147

  
	
   

  	
   

  	
  Telephone:602 952-9909

  
	
   

  	
   

  	
  Facsimile: 602-952-7129

  



 


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  With an Additional

  	
   

  	
  Bruce P. Vann, Esq.

  
	
  Copy to:

  	
   

  	
  Kelly Lytton & Vann LLP

  
	
   

  	
   

  	
  1900 Avenue of the Stars, Suite 1450

  
	
   

  	
   

  	
  Los Angeles, California 90067

  
	
   

  	
   

  	
  Facsimile:  310-277-5953

  
	
   

  	
   

  	
   

  
	
  If to Shareholders’

  	
   

  	
  Mr. Bruce Howe

  
	
  Representative:

  	
   

  	
  5375 Mira Sorrento Place, Suite 100

  
	
   

  	
   

  	
  San Diego, CA 92121

  
	
   

  	
   

  	
  Telephone No.: 858-622-0111

  
	
   

  	
   

  	
  Facsimile No.: 858-622-[•]

  
	
   

  	
   

  	
   

  
	
  With an Additional

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  Cooley Godward LLP

  
	
   

  	
   

  	
  4401 Eastgate Mall

  
	
   

  	
   

  	
  San Diego, CA 92121

  
	
   

  	
   

  	
  Attention:  Lance Bridges,
  Esq.

  
	
   

  	
   

  	
  Telephone No.: 858-550-6000

  
	
   

  	
   

  	
  Facsimile No.:  858-550-6420

  
	
   

  	
   

  	
   

  
	
  If to Escrow Agent:

  	
   

  	
  Mercantile National Bank

  
	
   

  	
   

  	
  1840 Century Park East

  
	
   

  	
   

  	
  Los Angeles, Ca. 90067

  
	
   

  	
   

  	
  Attn: Mandie Rush

  
	
   

  	
   

  	
  Facsimile: 310 788 0669

  



 


(h)                                 Severability.  If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith, in order to maintain the economic
position enjoyed by each party as close as possible to that under the provision
rendered unenforceable.  If the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement,
(ii) the balance of the Agreement shall be interpreted as if such
provision were so excluded and (iii) the balance of the Agreement shall be
enforceable in accordance with its terms.


 


(i)                                    Arbitration.   All
disputes between the Shareholders’ Representative and/or Acquiror on the one
hand, and Escrow Agent, on the other hand, relating to the payment of the
Escrow Fund and/or Escrow Agent’s rights, obligations, and liabilities arising
from or related to this Agreement shall be resolved by mandatory binding
expedited arbitration as provided in Section 4(c) above.  Acquiror, the Shareholders’ Representative,
and Escrow Agent shall abide by any decision rendered in such arbitration, and
that any court having jurisdiction may enforce such a decision.


 


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(j)                                    Entire
Agreement.  Except as set forth
in the Merger Agreement (the terms of which Escrow Agent is not to be
concerned), this Agreement is the product of all of the parties hereto, and
constitutes the entire agreement among such parties pertaining to the subject
matter hereof.   Any and all other
written or oral agreements existing between the parties hereto regarding such
transactions are expressly canceled.


 


(k)                                Advice
of Legal Counsel.  Each party
acknowledges and represents that, in executing this Agreement, it has had the
opportunity to seek advice as to its legal rights from legal counsel and that
the person signing on its behalf has read and understood all of the terms and
provisions of this Agreement.  This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.


 


IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.


 


	
  VITAL LIVING , INC.

  	
  SHAREHOLDERS:

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:  Brad Edson

  	
   

  	
   

  
	
  Title:  Chief Executive
  Officer

  	
  Bruce Howe

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:  Stuart Benson

  	
   

  	
   

  
	
  Title:  President

  	
  Derek Howe

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Maynard Howe

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Ezra Bejar

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Roger Howe

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  David Stenmoe

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  John Maher

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Pailla Reddy

  



 


9

















 


	
   

  	
   

  	
   

  
	
   

  	
  Ryan Howe

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Robert Nemer

  
	
   

  	
   

  
	
  Agreed and Accepted

  	
  Agreed and Accepted:

  
	
  “ESCROW AGENT”

  	
  “SHAREHOLDERS’ REPRESENTATIVE”

  
	
   

  	
   

  
	
  MERCANTILE NATIONAL BANK

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
  Mandie Rush, Senior Vice President

  	
  Bruce Howe

  
					



 


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