Document:

Fashion Tech International, Inc.: Exhibit 10.3 - Prepared by TNT Filings
Inc.

  

Exhibit 10.3

MAKE GOOD ESCROW AGREEMENT  

This Make Good Escrow Agreement (the "Make Good Agreement"), dated effective as of August 14, 2008, is entered into by and among Fashion Tech International, Inc., a Nevada corporation (the “Company”), KUNG Yiu Fai (the “Make Good Pledgor”), HFG International, Limited (“HFG”) and Securities Transfer Corporation, as escrow agent (“Escrow Agent”).
 

WHEREAS, the Make Good Pledgor has agreed to place certain shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) owned by him into escrow for the benefit of HFG in the event the Company fails to satisfy certain financial thresholds.

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

WHEREAS, all capitalized terms used but not defined herein which are defined in the Securities Purchase Agreement shall have the respective meanings given to such terms in the Securities Purchase Agreement;
 

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 Make Good Pledgor and the Company hereby appoint Escrow Agent to act as Escrow Agent in accordance with the terms and conditions set forth in this Make Good Agreement, and Escrow Agent hereby accepts such appointment and agrees to act as Escrow Agent in accordance with such terms and conditions.
 

2. Establishment of Escrow.  Within three business days of the execution of this Agreement by the Make Good Pledgor, the Make Good Pledgor shall deliver, or cause to be delivered, to the Escrow Agent certificates evidencing an aggregate of
2,513,758 shares of the Company’s Common Stock (the "Escrow Shares"), along with stock powers executed in blank (or such other signed instrument of transfer acceptable to the Company’s Transfer Agent).  As used in this Make Good Agreement, “Transfer Agent” means Securities Transfer Corporation, or such other entity hereafter retained by the Company as its stock transfer agent as specified in a writing from the Company to the Escrow Agent.  The Make Good Pledgor understands and agrees that HFG shall have the right to assign its rights to receive all or any such 2009 Make Good Shares and 2010 Make Good Shares to other persons.  The Make Good Pledgor hereby irrevocably agrees that he will not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or announce the offering of any of the Escrow Shares (including any securities convertible into, or exchangeable for, or representing the rights to receive Escrow Shares).  In furtherance thereof, the Company will (x) place a stop order on all Escrow Shares which shall expire on the date the Escrow Shares are delivered to HFG or returned to the Make Good Pledgor, (y) notify the Transfer Agent in writing of the stop order and the restrictions on such Escrow Shares under this Make Good Agreement and direct the Transfer Agent not to process any attempts by any Make Good Pledgor to resell or transfer any Escrow Shares before the date the Escrow Shares that should be delivered to HFG are delivered to HFG or returned to the Make Good Pledgor, or otherwise in violation of this Make Good Agreement.  The Company shall notify HFG as soon as the 2009 Make Good Shares and 2010 Make Good Shares have been deposited with the Escrow Agent.

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3. Representations of Make Good Pledgor.  The Make Good Pledgor (as to itself and its Escrowed Shares) hereby represents and warrants to HFG as follows:
 

(i) All of the Escrow Shares are validly issued, fully paid and nonassessable shares of the Company, and free and clear of all Liens.  Upon any transfer of Escrow Shares to HFG hereunder, HFG will receive full right, title and authority to such shares as holders of Common Stock of the Company free and clear of all liens other than those imposed by US Federal Securities laws.

(ii) Performance of this Make Good 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 upon any of the properties or assets of Make Good Pledgor pursuant to the terms of any indenture, mortgage, deed of trust or other agreement or instrument binding upon Make Good Pledgor or such properties or assets, other than such breaches, defaults or Liens which would not have a material adverse effect taken as a whole.

(iii) The Make Good Pledgor has carefully considered and understands its obligations and rights under this Make Good Agreement, and in furtherance thereof (x) has consulted with its legal and other advisors with respect thereto and (y) hereby forever waives and agrees that it may not assert any equitable defenses in any Proceeding involving the Escrow Shares.

4. Disbursement of Escrow Shares.  

a.

In the event that the After Tax Net Income (as defined below) reported in the Annual Report of the Company for the fiscal year ending March 31, 2009, as filed with the Commission on Form 10-K (or such other form appropriate for such purpose as promulgated by the Commission) (the “2009 Annual Report”) is less than $13,919,707 (the “2009 Guaranteed ATNI”), the Escrow Agent (on behalf of the Make Good Pledgor) will, without any further action on the part of HFG, transfer a number of 2009 Make Good Shares (as calculated below) to HFG for no consideration.  The “2009 Make Good Shares” means 1,256,879 shares of the Company’s common stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions).  The number of 2009 Make Good Shares issuable to HFG shall be equal to:

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[(2009 Guaranteed ATNI – actual After Tax Net Income of the Company for the fiscal year ended March 31, 2009)/2009 Guaranteed ATNI]*aggregate number of 2009 Make Good Shares  

In the event that the After Tax Net Income (as defined below) reported in the Annual Report of the Company for the fiscal year ending March 31, 2010, as filed with the Commission on Form 10-K (or such other form appropriate for such purpose as promulgated by the Commission) (the “2010 Annual Report”) is less than $18,495,315 (the “2010 Guaranteed ATNI”), the Escrow Agent (on behalf of the Make Good Pledgor) will, without any further action on the part of HFG, transfer a number of 2010 Make Good Shares (as calculated below) to HFG for no consideration.  The “2010 Make Good Shares” means 1,256,879 shares of the Company’s common stock (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions).  The number of 2010 Make Good Shares issuable to HFG shall be equal to:

[(2010 Guaranteed ATNI – actual After Tax Net Income of the Company for the fiscal year ended March 31, 2010)/2010 Guaranteed ATNI]*aggregate number of 2010 Make Good Shares  

For purposes hereof, “After Tax Net Income” shall mean the Company’s operating income after taxes for the fiscal year ending March 31, 2009 or March 31, 2010 (as applicable) in each case determined in accordance with GAAP as reported in the 2009 Annual Report or 2010 Annual Report (as applicable).  Notwithstanding the foregoing or anything else to the contrary herein, for purposes of determining whether or not the 2009 Guaranteed ATNI and 2010 Guaranteed ATNI have been met, (i) expenses incurred as a result of the Company's fulfillment of its obligations under Section 4.8 of the Securities Purchase Agreement shall be excluded (i.e., costs for hiring the independent directors (including compensation for such independent directors and costs for director’s and officer’s insurance coverage in an amount and scope that is customary for a company of the Company’s size and nature) and hiring of the investor relations firm); (ii) the release of any of the 2009 Make Good Shares and/or 2010 Make Good Shares to the Make Good Pledgor as a result of the operation of this Section 4 shall not be deemed to be an expense, charge, or any other deduction from revenues even though GAAP may require contrary treatment or the Annual Report for the respective fiscal years filed with the Commission by the Company may report otherwise; and (iii) expenses (including interests and fees) incurred as a result of the issuance of debt for an amount no greater than the difference between $20 million and the aggregate Investment Amount should be excluded.   Other than as set forth in this Section 4, no other exclusions shall be made for any non-recurring expenses of the Company in determining whether any of the 2009 Guaranteed ATNI or 2010 Guaranteed ATNI have been achieved.  

If prior to the second anniversary of the filing of either of the 2009 Annual Report or the 2010 Annual Report (as applicable), the Company or their auditors report or recognize that the financial statements contained in such report are subject to amendment or restatement such that the Company would recognize or report adjusted After Tax Net Income of less than either of the 2009 Guarantee ATNI or the 2010 Guaranteed ATNI (as applicable), then notwithstanding any prior return of 2009 Make Good Shares or 2010 Make Good Shares to the Make Good Pledgor, the Make Good Pledgor will, within 10 Business Days following the earlier of the filing of such amendment or restatement or recognition, deliver the relevant 2009 Make Good Shares or 2010 Make Good Shares to HFG without any further action on the part of HFG.  

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In the event that the After Tax Net Income reported in the 2009 Annual Report is equal to or greater than the 2009 Guaranteed ATNI, no transfer of the 2009 Make Good Shares shall be required by the Make Good Pledgor to HFG under this Section and such 2009 Make Good Shares shall be returned to the Make Good Pledgor in accordance with this Make Good Agreement.  In the event that the After Tax Net Income reported in the 2010 Annual Report is equal to or greater than the 2010 Guaranteed ATNI, no transfer of the 2010 Make Good Shares shall be required by the Make Good Pledgor to HFG under this Section and such 2010 Make Good Shares shall be returned to the Make Good Pledgor in accordance with the Make Good Agreement, subject to return as provided in the immediately preceding sentence.  

Any transfer of the 2009 Make Good Shares and the 2010 Make Good Shares under this Section shall be made to HFG or the Make Good Pledgor, as applicable, within 10 Business Days after the date which the 2009 Annual Report or 2010 Annual Report, as applicable, is filed with the Commission and otherwise in accordance with this Make Good Agreement subject to return as provided in the immediately preceding paragraph and, in the event that any of the 2009 Make Good Shares or 2010 Make Good Shares are required to be distributed to HFG in accordance with the terms of this Agreement, the Escrow Agent will deliver such shares to HFG.  HFG will deliver to the Escrow Agent (with a copy to the Company) a copy of the 2009 Annual Report and 2010 Annual Report, together with the calculation of whether the 2009 Guaranteed ATNI or 2010 Guaranteed ATNI (as applicable) has been achieved.  Escrow Agent need only rely on such letters from HFG and will disregard any contrary or further calculations or instructions in such regard delivered by or on behalf of the Company.  

b.

Pursuant to Section 4(a), if HFG delivers a notice to the Escrow Agent that the Escrow Shares are to be transferred to HFG, then the Escrow Agent shall immediately forward either the 2009 Make Good Shares or 2010 Make Good Shares, as the case may be, to the Company’s Transfer Agent for reissuance to HFG in accordance with this Make Good Agreement. The Company covenants and agrees that upon any transfer of 2009 Make Good Shares or 2010 Make Good Shares to HFG in accordance with this Make Good Agreement, the Company shall promptly instruct its Transfer Agent to reissue such 2009 Make Good Shares or 2010 Make Good Shares to HFG.  If the Company does not promptly provide such instructions to the Transfer Agent of the Company, then HFG is hereby irrevocably authorized and directed by the Company to give such re-issuance instruction to the Transfer Agent of the Company.  If a notice from HFG pursuant to Section 4(a) indicates that the Escrow Shares are to be returned to the Make Good Pledgor, then the Escrow Agent will promptly deliver either the 2009 Make Good Shares or 2010 Make Good Shares, as the case may be, to the Make Good Pledgor in accordance with instructions provided by the Make Good Pledgor at such time.

c.

The Company and Make Good Pledgor covenant and agree to provide the Escrow Agent with certified tax identification numbers by furnishing appropriate forms W-9 or W-8 and such other forms and documents that the Escrow Agent may request, including appropriate W-9 or W-8 forms for HFG.  The Company, Make Good Pledgor and HFG understand that if such tax reporting documentation is not provided and certified to the Escrow Agent, the Escrow Agent may be required by the Internal Revenue Code of 1986, as amended, and the Regulations promulgated thereunder, to withhold a portion of any interest or other income earned on the investment of the Escrow Property.
 

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5. Notice of Filings.  The Company agrees to promptly provide HFG written notice of the filing with the Commission of any financial statements or reports referenced herein.

6. Escrow Shares.  If any Escrow Shares are deliverable to HFG in accordance with this Make Good Agreement, (i) Make Good Pledgor covenants and agrees to execute all such instruments of transfer (including stock powers and assignment documents) as are customarily executed to evidence and consummate the transfer of the Escrow Shares from Make Good Pledgor to HFG, to the extent not done so in accordance with Section 2, and (ii) following its receipt of the documents referenced in Section 6(i), the Company and Escrow Agent covenant and agree to cooperate with the Transfer Agent so that the Transfer Agent may promptly reissue such Escrow Shares in the name of HFG or as  otherwise directed in writing by HFG.  Until such time as (if at all) the Escrow Shares are required to be delivered in accordance with this Make Good Agreement, (i) any dividends payable in respect of the Escrow Shares and all voting rights applicable to the Escrow Shares shall be retained by Make Good Pledgor and (ii) should the Escrow Agent receive dividends or voting materials, such items shall not be held by the Escrow Agent, but shall be passed immediately on to the Make Good Pledgor and shall not be invested or held for any time longer than is needed to effectively re-route such items to the Make Good Pledgor.  In the event that the Escrow Agent receives a communication requiring the conversion of the Escrow Shares to cash or the exchange of the Escrow Shares for that of an acquiring company, the Escrow Agent shall solicit and follow the written instructions of the Make Good Pledgor; provided, that the cash or exchanged shares are instructed to be redeposited into the Escrow Account.  Make Good Pledgor shall be responsible for all taxes resulting from any such conversion or exchange.

Assuming the Make Good Pledgor provides good and valid title to the Escrow Shares to be transferred and delivered on behalf of the Make Good Pledgor to HFG hereunder, free and clear of all liens, encumbrances, equities or claims, the Escrow Agent will ensure that upon delivery of the Escrow Shares, good and valid title to the Escrow Shares, free and clear of all liens, encumbrances, equities or claims will pass to HFG.   The Escrow Agent shall not take any action which could impair HFG’s rights in the Escrow Shares.  The Escrow Agent shall not sell, transfer, assign or otherwise dispose of (by operation of law or otherwise) or grant any option with respect to any Escrow Shares prior to the termination of this Agreement.

7. Interpleader.  Should any controversy arise among the parties hereto with respect to this Make Good Agreement or with respect to the right to receive the Escrow Shares, Escrow Agent shall have the right to consult and hire counsel and/or to institute an appropriate interpleader action to determine the rights of the parties. Escrow Agent is 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 7 shall be filed in any court of competent jurisdiction in the State of New York, 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 Make Good Agreement with respect to the Escrow Shares and any other obligations hereunder.
 

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8.  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 Make Good 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 Make Good Agreement and instructions to Escrow Agent pursuant to the terms of this Make Good 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, absent gross negligence or willful misconduct.  Escrow Agent 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 Make Good 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.  THE ESCROW AGENT SHALL NOT BE LIABLE, DIRECTLY OR INDIRECTLY, FOR ANY (I) DAMAGES, LOSSES OR EXPENSES ARISING OUT OF THE SERVICES PROVIDED HEREUNDER, OTHER THAN DAMAGES, LOSSES OR EXPENSES WHICH HAVE BEEN FINALLY ADJUDICATED TO HAVE DIRECTLY RESULTED FROM THE ESCROW AGENT’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, OR (II) SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR LOSSES OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS), EVEN IF THE ESCROW AGENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSSES OR DAMAGES AND REGARDLESS OF THE FORM OF ACTION.

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c.

The Company and each Make Good Pledgor each hereby, jointly and severally, indemnify and hold harmless Escrow Agent, and any of its principals, partners, agents, employees and affiliates 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 Make Good Agreement or the services of Escrow Agent hereunder; except, that if Escrow Agent is guilty of willful misconduct or gross negligence under this Make Good Agreement, then Escrow Agent, as the case may be, will bear all losses, damages and expenses arising as a result of its own willful misconduct 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 8 shall survive the termination of this Make Good Agreement, and the resignation or removal of the Escrow Agent.
 

9. Compensation of Escrow Agent.  Escrow Agent shall be entitled to compensation for its services as stated in the fee schedule attached hereto as Exhibit A, which compensation shall be paid by the Company. The fee agreed upon for the services rendered hereunder is intended as full compensation for Escrow Agent's services as contemplated by this Make Good Agreement; provided, however, that in the event that Escrow Agent renders any material service not contemplated in this Make Good Agreement, or there is any assignment of interest in the subject matter of this Make Good Agreement, or any material modification hereof, or if any material controversy arises hereunder, or Escrow Agent is made a party to any litigation pertaining to this Make Good Agreement, or the subject matter hereof, then Escrow Agent shall be reasonably compensated by the Company for such extraordinary services and reimbursed for all costs and expenses, including reasonable attorney's fees, occasioned by any delay, controversy, litigation or event, and the same shall be recoverable from the Company.  Prior to incurring any costs and/or expenses in connection with the foregoing sentence, Escrow Agent shall be required to provide written notice to the Company of such costs and/or expenses and the relevancy thereof and Escrow Agent shall not be permitted to incur any such costs and/or expenses which are not related to litigation prior to receiving written approval from the Company, which approval shall not be unreasonably withheld.

10. Resignation of Escrow Agent.  At any time, upon ten (10) Business Days' written notice to the Company and HFG, 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-Business 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 shall deposit the Escrow Shares as directed by HFG with the understanding that such Escrow Shares will continue to be subject to the provisions of this Make Good Agreement.

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11. Records.  Escrow Agent shall maintain accurate records of all transactions hereunder.  Promptly after the termination of this Make Good 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 and at the requesting party’s expense.
 

12. Notice.  All notices, communications and instructions required or desired to be given under this Make Good 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, to the addresses listed on the signature pages hereto.

13. Execution in Counterparts.  This Make Good 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.
 

14. Assignment and Modification.  This Make Good Agreement and the rights and obligations hereunder of the Company may be assigned by the Company only following the prior written consent of HFG. This Make Good Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent only with the prior consent of the Company and HFG.  This Make Good Agreement and the rights and obligations hereunder of the Make Good Pledgor may not be assigned by any Make Good Pledgor.  Subject to the requirements under federal and state securities laws, HFG may assign its rights under this Make Good Agreement without any consent from any other party. This Make Good Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Escrow Agent, the Company, the Make Good Pledgor and HFG.  This Make Good Agreement is binding upon and intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Make Good Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person.  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 Make Good Agreement.

15. Applicable Law.  This Make Good Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Make Good Agreement shall survive the execution and delivery hereof and any investigations made by any party. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Make Good Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith, and hereby irrevocably waives, and agrees not to assert in any such proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Make Good Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

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

17. 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 Make Good 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.

18. Merger or Consolidation.  Any corporation or association into which the Escrow Agent may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer all or substantially all of its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which the Escrow Agent is a party, shall be and become the successor escrow agent under this Make Good Agreement and shall have and succeed to the rights, powers, duties, immunities and privileges as its predecessor, without the execution or filing of any instrument or paper or the performance of any further act.
 

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

  	COMPANY:
	 	 
	FASHION TECH
      INTERNATIONAL, INC.
	 	 
	By: /s/ Jinglin
      Shi                                             
      
	Name: Jinglin Shi
	Title:	Chief Executive
      Officer
	 	 
	Address: 	Daqing LongHeDa Food Co., Ltd.
	 	No. 2 Wenhua Street
	 	Dongfeng New
      Village, Daqing
	 	Heilongjiang, China
      163311
	 	 
	Facsimile: (86)
      459-4609488
	Attn.: Chief
      Executive Officer
	 	 
	MAKE GOOD PLEDGOR:
	 	 
	KUNG YIU FAI
	 	 
	/s/ Kung Yiu Fai                                                   
      
	 	 
	Address:
	Flat 7, 16/F, Block
      45, Heng Fa Chuen,
	Chai Wan, Hong Kong
	 	 
	Facsimile:
	 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK -

 SIGNATURE PAGE FOR OTHER PARTIES FOLLOWS]

 

 

  	ESCROW AGENT:
	 
	Securities Transfer
      Corporation, as Escrow Agent
	 
	By: /s/ Kevin Halter, Jr.                                                    
      
	Name: Kevin Halter, Jr.
	Title: President
	 
	Address: 2591 Dallas Parkway,
      Suite 102,
	                
      Frisco, TX 75034
	 
	Facsimile:
	Attn.: Kevin B. Halter, Jr.
	 
	HFG
	 
	HFG International, Limited
	 
	By: /s/ Timothy P. Halter                                                 
      
	Name: Timothy P. Halter
	Title: President
	 
	Address: c/o Halter Financial
      Group
	4965 Preston Park Blvd. Suite
      250
	Plano, Texas 75093
	 
	Facsimile: 972.985.4014
	Attn.: Timothy P. HalterFashion Tech International, Inc. - Exhibit 10.4 - Prepared By TNT Filings
Inc.

  

Exhibit 10.4

 

HOLDBACK ESCROW AGREEMENT

 

This Holdback Escrow Agreement, dated as of August 14, 2008 (this “Agreement”), is entered into by and among Fashion Tech International, Inc., a Nevada corporation, and all predecessors thereof (collectively, the “Company”), WLT Brothers Capital, Inc., as Investor agent (the “Investor Agent”), and Securities Transfer Corporation (the “Escrow Agent”).

WITNESSETH:  

 

WHEREAS, the Company proposes to make a private offering to the Investors (the “Offering”) of the Company’s common stock, par value $0.001 per share pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and among the Company, the Investors and certain other parties signatory thereto (the “Securities Purchase Agreement”) (capitalized terms used but not otherwise defined herein which are defined in the Securities Purchase Agreement shall have the respective meanings given to such terms in the Securities Purchase Agreement);

 

WHEREAS, pursuant to the Securities Purchase Agreement and the Closing Escrow Agreement, the Company has agreed that an aggregate of $450,000 of the aggregate Investment Amounts paid by Investors to the escrow account established in accordance with the Closing Escrow Agreement (the “Escrowed Funds”), will be deposited at Closing with the Escrow Agent, to continue to be held in escrow, administered and distributed as described in Section 4.8 of the Securities Purchase Agreement and in accordance with Section 3 of this Agreement; and

 

WHEREAS, as a material inducement for the Investors to enter into the Securities Purchase Agreement and consummate the Closing, the Company and Escrow Agent have agreed to enter into this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises herein contained and intending to be legally bound, the parties hereby agree as follows:

 

1.

Appointment of Escrow Agent. The Company hereby appoints Escrow Agent to act as escrow agent in accordance with the terms of this Agreement, and the Escrow Agent hereby accepts such appointment.

2.

Delivery of the Escrowed Funds.

 

The Company hereby directs that the Escrowed Funds be delivered simultaneously with the Closing to the Escrow Agent’s account (the “Escrow Account”) as follows:

 

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Bank Name:

Nexity Bank

ABA #:  

062006330 

Credit to:

Vision Bank – Texas

Account #:

2000001897

For the benefit of:

Securities Transfer Corporation account “K”

Account #:

201558

Escrowed Funds:

$450,000

3.

Escrow Agent to Hold and Disburse Escrowed Funds. Promptly following the Closing, the Escrow Agent will provide written notice to the Company (for simultaneous distribution to the Investor Agent) that the Escrow Agent has received the entire amount of Escrowed Funds in the Escrow Account.  The Escrow Agent will hold and disburse the Escrowed Funds received by it pursuant to the terms of this Agreement, as follows:   

 

3.1

Board Holdback Escrow.  Pursuant to Section 4.8(a) of the Securities Purchase Agreement, the Company has undertaken that no later than 180 days following the Closing Date, the Board of Directors of the Company shall be comprised of a minimum of five members (at least two of whom shall be fluent English speakers who possess experience such that he or she can fulfill its fiduciary obligations and other responsibilities as a director of a United States publicly listed company incorporated in the United States), a majority of which shall be “independent directors” as such term is defined in NASDAQ Marketplace Rule 4200(a)(15) and a meeting of such full Board of Directors shall be convened within such 180 days following the Closing Date.  The Board of Directors shall appoint Board committees, which shall include, but not be limited to, an Audit Committee, Nominating Committee and Compensation Committee (such a Board of Directors being referred to as a “Qualified Board”). To secure the establishment of a Qualified Board, the Company has agreed that $250,000 of the Escrowed Funds (the “Board Holdback Escrow Amount”) shall be held in the Escrow Account unless and until the establishment of a Qualified Board.  Upon the Establishment of a Qualified Board, the Company and the Investor Agent shall execute and deliver written instructions (such written instructions shall not be unreasonably withheld by the Investor Agent) with reference to this Section 3.1 to release the Board Holdback Escrow Amount to the Company (“Instructions to Release Board Holdback”).  Within one (1) Business Day following its receipt of Instructions to Release Board Holdback (with wire instructions attached) jointly executed by the Company and the Investor Agent, the Escrow Agent shall distribute the Board Holdback Escrow Amount in accordance with such written instructions.  It is expressly understood that the Company shall have the sole authority to select the members of the Board of Directors of the Company, provided that such members shall satisfy the requirements as set forth in Section 3.1 of this Agreement and Section 4.8(a) of the Securities Purchase Agreement.  For the avoidance of doubt, the Board Holdback Escrow Amount shall be released from the Escrow Account upon the establishment of a Qualified Board in accordance with Section 3.1 of this Agreement notwithstanding whether a Qualified Board is established within 180 days following the Closing Date.

 

3.2

IR Holdback Escrow.  Pursuant to Section 4.8(b) of the Securities Purchase Agreement, the Company has undertaken that no later than thirty (30) days following the Closing Date, the Company shall have hired either of CCG Elite, Hayden Communications, or Integrated Corporate Relations as it’s investor relations firm.  Accordingly, $200,000 (the “IR Holdback Escrow Amount”) of the Escrowed Funds is to be held in the Escrow Account subject to the satisfaction of the Company’s obligations under this Section 3.2 and Section 4.8(b) of the Securities Purchase Agreement.  The IR Holdback Escrow Amount shall remain in the Escrow Account and shall only be released by the Escrow Agent to the Company upon the Escrow Agent’s receipt of written notice from the Company and the Investor Agent that the Company has hired the aforementioned investor relations firms and then only to the extent that the Company provides evidence of investor relations related expenses.  From time to time as the Company incurs investor relations related expenses, it shall reflect such amount on written instructions with reference to this Section 3.2 to release a portion of the IR Holdback Escrow Amount to the Company (“Instructions to Release IR Holdback”), which shall specify the dollar amount and payee bank account to which the applicable amount shall be transferred.  The Escrow Agent shall, upon receipt of Instructions to Release IR Holdback (on one or more occasions) jointly executed by the Company and the Investor Agent, pay the IR Holdback Escrow Amount in accordance with such written instructions, such payment or payments to be made by wire transfer within one (1) Business Day of receipt of such written instructions.  For the avoidance of doubt, the IR Holdback Escrow Amount shall be released from the Escrow Account upon the hiring of the aforementioned investor relations firms in accordance with Section 3.2 of this Agreement notwithstanding whether such investor relations firm is hired within 30 days following the Closing Date.

 

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4.  

Interpleader.  Should any controversy arise among the parties hereto with respect to this Agreement or with respect to the right to receive the Escrowed Funds, 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 4 shall be filed in any court of competent jurisdiction in New York, and the portion of the Escrowed Funds 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 Escrowed Funds.

 

5.

Exculpation and Indemnification of Escrow Agent and Investor Agent.

 

5.1  

The Escrow Agent shall have no duties or responsibilities other than those expressly set forth herein. The Escrow Agent and the Investor Agent shall have no duty to enforce any obligation of any person other than itself to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any person to perform any other act. The Escrow Agent and the Investor Agent shall be under no liability to the other parties hereto or anyone else, by reason of any failure, on the part of any other party hereto or any maker, guarantor, endorser or other signatory of a document or any other person, to perform such person’s obligations under any such document. Except for amendments to this Agreement referenced below, and except for written instructions given to the Escrow Agent by the Company and a Majority in Interest of the Investor Agent relating to the Escrowed Funds, the Escrow Agent shall not be obligated to recognize any other agreement.

 

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5.2  

Neither the Escrow Agent nor the Investor Agent shall be liable to the Company or to anyone else for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith and acting upon any order, notice, demand, certificate, 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 believed by the Escrow Agent or the Investor Agent to be genuine and to be signed or presented by the proper person or persons. The Escrow Agent shall not be bound by any of the terms thereof, unless evidenced by written notice delivered to the Escrow Agent signed by the proper party or parties and, if the duties or rights of the Escrow Agent are affected, unless it shall give its prior written consent thereto.

 

5.3  

Neither the Escrow Agent nor the Investor Agent shall be responsible for the sufficiency or accuracy of the form, or of the execution, validity, value or genuineness of, any document or property received, held or delivered to it hereunder, or of any signature or endorsement thereon, or for any lack of endorsement thereon, or for any description therein; nor shall the Escrow Agent or the Investor Agent be responsible or liable to the Company or to anyone else in any respect on account of the identity, authority or rights, of the person executing or delivering or purporting to execute or deliver any document or property or this Agreement. The Escrow Agent shall have no responsibility with respect to the use or application of the Escrowed Funds pursuant to the provisions hereof.

 

5.4  

The Escrow Agent shall have the right to assume, in the absence of written notice to the contrary from the proper person or persons, that a fact or an event, by reason of which an action would or might be taken by the Escrow Agent, does not exist or has not occurred, without incurring liability to the Company or to anyone else for any action taken or omitted to be taken or omitted, in good faith and in the exercise of its own best judgment, in reliance upon such assumption.

 

5.5

To the extent that the Escrow Agent becomes liable for the payment of taxes, including withholding taxes, in respect of income derived from the investment of the Escrowed Funds, or any payment made hereunder, the Escrow Agent may pay such taxes; and the Escrow Agent may withhold from any payment to the Company of the Escrowed Funds such amount as the Escrow Agent estimates to be sufficient to provide for the payment of such taxes not yet paid, and may use the sum withheld for that purpose. The Escrow Agent shall be indemnified and held harmless by the Company against any liability for taxes and for any penalties in respect of taxes, on such investment income or payments in the manner provided in Section 5.6.

 

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5.6

The Escrow Agent will be indemnified and held harmless by the Company from and against all expenses, including all reasonable counsel fees and disbursements, or loss suffered by the Escrow Agent in connection with any action, suit or proceedings involving any claim, or in connection with any claim or demand, which in any way, directly or indirectly, arises out of or relates to this Agreement, the services of the Escrow Agent hereunder, except for claims resulting from the gross negligence or willful malfeasance of the Escrow Agent or breach of this Agreement by the Escrow Agent, or the monies or other property held by it hereunder. Promptly after the receipt of the Escrow Agent of notice of any demand or claim or the commencement of any action, suit or proceeding, the Escrow Agent shall, if a claim in respect thereof is to be made against the Company, notify it thereof in writing, but the failure by the Escrow Agent to give such notice shall not relieve any such party from any liability which the Company may have to the Escrow Agent hereunder.

 

5.7

For purposes hereof, the term “expense or loss” shall include all amounts paid or payable to satisfy any claim, demand or liability, or in settlement of any claim, demand, action, suit or proceeding settled with the express written consent of the Escrow Agent, and all costs and expenses, including, but not limited to, reasonable counsel fees and disbursements, paid or incurred in investigating or defending against any such claim, demand, action, suit or proceeding.

 

6.

Resignation of Escrow Agent.  The Escrow Agent may resign at any time and be discharged from its duties as Escrow Agent hereunder by giving the Company and the Investor Agent at least ten (10) Business Days written notice thereof (the “Notice Period”). As soon as practicable after its resignation, the Escrow Agent shall, if it receives notice from the Company within the Notice Period, turn over to a successor escrow agent appointed by the Company all Escrowed Funds (less such amount as the Escrow Agent is entitled to retain pursuant to Section 8) upon presentation of the document appointing the new escrow agent and its acceptance thereof.  If no new agent is so appointed within the Notice Period, the Escrow Agent shall return the Escrowed Funds to or as directed by the Investor Agent, without interest or deduction with the understanding that such Escrowed Funds will continue to be subject to the provisions of this Agreement.

 

7.

Form of Payments by Escrow Agent.

 

7.1

Any payments of the Escrowed Funds by the Escrow Agent pursuant to the terms of this Agreement shall be made by wire transfer unless directed to be made by check by the receiving party.

 

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7.2

All amounts referred to herein are expressed in United States Dollars (US$) and all payments by the Escrow Agent shall be made in such dollars.

 

8.

Compensation. At the Closing, the Company shall pay a fee to the Escrow Agent of $1,000 (it being understood that no Investor shall be responsible to pay the Escrow Agent any compensation or fees hereunder).

 

 

9.

Notices. All notices, requests, demands, and other communications provided herein shall be in writing, shall be delivered by hand or by first-class mail, shall be deemed given when received and shall be addressed to parties hereto at their respective addresses All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by hand-delivery, by facsimile (followed by first-class mail), by nationally recognized overnight courier service or by prepaid registered or certified mail, return receipt requested, to the addresses set forth below.

 

If to Investor Agent:

 

WLT Brothers Capital, Inc.

101 Watersedge  

Hilton Head Island, SC 29928

Facsimile:  (843) 341-9251

Attention:  Mr. James H. Groh

 

If to the Company:

 

Fashion Tech International, Inc.

12890 Hilltop Road  

Argyle, TX 76226

Facsimile:  

Attention:  Chief Executive Officer

 

With a copy to:

 

Thelen Reid Brown Raysman & Steiner LLP

701 8th Street NW

Washington, D.C. 20001

Facsimile:  (202) 654-1804

Attn.:  Louis A. Bevilacqua, Esq.

 

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If to Escrow Agent:

 

Securities Transfer Corporation

2591 Dallas Parkway, Suite 102,  

Frisco, TX 75034  

Facsimile: (469) 633-0088

Attn: Kevin B. Halter Jr.

 

10.

Further Assurances. From time to time on and after the date hereof, the Company shall deliver or cause to be delivered to the Escrow Agent such further documents and instruments and shall do and cause to be done such further acts as the Escrow Agent shall reasonably request (it being understood that the Escrow Agent shall have no obligation to make any such request) to carry out more effectively the provisions and purposes of this Agreement, to evidence compliance herewith or to assure itself that it is protected in acting hereunder.

 

11.

Miscellaneous.

 

11.1

This Agreement shall be construed without regard to any presumption or other rule requiring construction against the party causing such instrument to be drafted. The terms “hereby,” “hereof,” “hereunder,” and any similar terms, as used in this Agreement, refer to the Agreement in its entirety and not only to the particular portion of this Agreement where the term is used. The word “person” shall mean any natural person, partnership, corporation, government and any other form of business of legal entity. All words or terms used in this Agreement, regardless of the number or gender in which they were used, shall be deemed to include any other number and any other gender as the context may require. This Agreement shall not be admissible in evidence to construe the provisions of any prior agreement.

 

11.2

This Agreement and the rights and obligations hereunder of the Company may be assigned by the Company only following the prior written consent of the Investor Agent. This Agreement and the rights and obligations hereunder of the Escrow Agent may be assigned by the Escrow Agent only with the prior consent of the Company and the Investor Agent.  The Investor Agent may assign its rights under this Agreement without any consent from any other party.  This Agreement may not be changed orally or modified, amended or supplemented without an express written agreement executed by the Escrow Agent, the Company and the Investor Agent. This Agreement is binding upon and intended to be for the sole benefit of the parties hereto and their respective successors, heirs and permitted assigns, and none of the provisions of this Agreement are intended to be, nor shall they be construed to be, for the benefit of any third person, except for the Investors under the Securities Purchase Agreement.

 

11.3

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York. The representations and warranties contained in this Agreement shall survive the execution and delivery hereof and any investigations made by any party. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement shall be commenced exclusively in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith, and hereby irrevocably waives, and agrees not to assert in any such proceeding, any claim that it is not personally subject to the jurisdiction of any such New York Court, or that such proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  

 

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11.4

The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect any of the terms thereof.  This Agreement may be executed in a number of counterparts, by facsimile, each of which shall be deemed to be an original as of those whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more of the counterparts hereof, individually or taken together, are signed by all the parties.

 

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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on the day and year first above written.

SECURITIES TRANSFER CORPORATION

 

By: /s/ Kevin Halter, Jr.                  

Name: Kevin Halter, Jr.

Title: President

 

 

FASHION TECH INTERNATIONAL, INC.

 

By: /s/ Jinlin Shi                            

Name: Jinlin Shi

Title:   Chief Executive Officer

 

 

WLT BROTHERS CAPITAL, INC.

 

By: /s/   James H. Groh

Name: James H. Groh  

Title: President and CEO

 

 

[Signature Page to Holdback Escrow Agreement]

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