Document:

Exhibit 10.5

    Exhibit
      10.5

     

    

    MATRIA
      HEALTHCARE, INC.

    2005
      DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN

    

    1. Establishment
      and Purpose.

    

    (a) Matria
      Healthcare, Inc. a Delaware corporation (the "Company"), hereby adopts its
      2005
      Directors' Non-Qualified Stock Option Plan (the "Plan"). The Plan is intended
      to
      provide a means whereby eligible members of the Board may be given an
      opportunity to purchase shares of Stock pursuant to options which are not
      intended to qualify as incentive stock options under Section 422 of the
      Code.

    

    (b) The
      purpose of the Plan is to enable the Company to attract qualified individuals
      to
      serve as members of the Board, to provide additional performance incentive
      to
      such individuals while serving as directors, and to encourage their continued
      service on the Board.

    

    2. Definitions.
      As used
      herein, the following definitions shall apply:

    

    (a) "Affiliate"
      shall mean any parent or subsidiary corporations of the Company, as defined
      in
      Sections 424(e) and (f) of the Code (but substituting "the Company" for
      "employer corporation"), including parents or subsidiaries of the Company that
      become such after adoption of the Plan.

    

    (b) "Board"
      shall mean the Board of Directors of the Company.

    

     

    (c) "Change
      in Control" shall mean a change in ownership or control of the Company effected
      through either of the following transactions:

     

     

    

     

    (i) the
      direct or indirect acquisition by any person or related group of persons (other
      than an acquisition from or by the Company or by a Company-sponsored employee
      benefit plan) of beneficial ownership (within the meaning of Rule 13d-3 of
      the
      Securities Exchange Act of 1934, as amended (the "Exchange Act") of securities
      possessing more than fifty percent (50%) of the total combined voting power
      of
      the Company's outstanding Stock;

    

    (ii) a
      change
      in the composition of the Board over a period of thirty-six (36) months or
      less
      such that a majority of the Board members (rounded up to the next whole number)
      ceases, by reason of one or more contested elections for Board membership or
      by
      one or more actions by written consent of shareholders, to be comprised of
      individuals who either (A) have been Board members continuously since the
      beginning of such period or (B) have been elected or nominated for election
      as
      Board members during such period by at least a majority of the Board members
      described in clause (A) who were still in office at the time such election
      or
      nomination was approved by the Board.

    

    (d) "Code
      shall mean the Internal Revenue Code of 1986, as amended.

    

    (e) "Company"
      shall mean Matria Healthcare, Inc. a Delaware corporation.

    

    (f) "Continuous
      Status as a Director" shall mean the absence of any interruption or termination
      of service as a Director.

    

    (g) "Corporate
      Transaction" shall mean any of the following stockholder-approved transactions
      to which the Company is a party:

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    

    (i) approval
      by the Company's shareholders of a merger or consolidation in which the Company
      is not the surviving entity, except for a transaction the principal purpose
      of
      which is to change the state in which the Company is incorporated;

    

    (ii) approval
      by the Company's shareholders of the sale, transfer or other disposition of
      all
      or substantially all of the assets of the Company (including the capital stock
      of the Company's subsidiary corporations) in connection with a complete
      liquidation or dissolution of the Company; or

    

    (iii) approval
      by the Company's shareholders of any reverse merger in which the Company is
      the
      surviving entity but in which securities possessing more than fifty percent
      (50%) of the total combined voting power of the Company's outstanding securities
      are transferred to a person or persons different from those who held such
      securities immediately prior to such merger.

    

    (h) "Director"
      shall mean a member of the Board.

    

    (i) "Effective
      Date" shall mean the date this Plan is adopted by the Board.

    

    (j) "Employee"
      shall mean any person who is an employee of the Company, or any Affiliate of
      the
      Company, for purposes of tax withholding under the Code. The payment of a
      director's fee by the Company shall not be sufficient to render the recipient
      of
      such fee an Employee.

    

    (k) "Exchange
      Act" shall mean the Securities Exchange Act of 1934, as amended.

    

    (l) "Fair
      Market Value" shall mean, as of any date, the value of a share of Stock
      determined as follows:

    

    (i) If
      the
      Stock is listed on any established stock exchange or a national market system,
      including without limitation the Nasdaq National Market, its Fair Market Value
      shall be the closing selling price for such stock on the principal securities
      exchange or national market system on which the Common Stock is at the time
      listed for trading. If there are no sales of Common Stock on that date, then
      the
      closing selling price for the Common Stock on the next preceding day for which
      such closing selling price is quoted shall be determinative of Fair Market
      Value; or

    

    (ii) If
      the
      Stock is not traded on any exchange or a national market system, its Fair Market
      Value shall be determined in good faith by the Board, and such determination
      shall be conclusive and binding on all persons.

    

    (m) "Option"
      shall mean an option to purchase shares of Stock granted pursuant to the
      Plan.

    

    (n) "Option
      Agreement" shall mean the written agreement setting forth the terms of an Option
      in the form attached as Exhibit A hereto.

    

    (o) "Optionee"
      shall mean an Outside Director who receives an Option.

    

    (p) "Outside
      Director" shall mean a Director who is not an Employee.

    

    (q) "Person"
      shall mean a natural person, corporation, partnership, limited liability
      company, joint venture, trust, or any other entity and any government or
      instrumentality of government.

    

    (r) "Plan"
      shall mean this Matria Healthcare, Inc. 2005 Directors' Non-Qualified Stock
      Option Plan.

    

    (s) "Securities
      Act" shall mean the Securities Act of 1933, as amended.

    

    (t) "Stock"
      shall mean the common stock, $0.01 par value per share, of the
      Company.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    3. Stock
      Subject to the Plan.
      Subject
      to the provisions of Section 12 of the Plan, the maximum number of shares of
      Stock which may be made subject to Options and sold under the Plan is 165,000
      shares of Stock. If an Option expires or becomes unexercisable for any reason
      and has not been exercised in full, the Stock subject to such Option shall
      be
      available for future grant under the Plan. If Stock which was acquired upon
      exercise of an Option is subsequently repurchased by the Company, such Stock
      shall not be available for future grants under the Plan.

    

    4. Interpretation
      and Administration of the Plan.

    

    (a) The
      Plan
      is intended to be self-executing pursuant to the terms hereof. However, any
      questions concerning interpretation or execution of the Plan or grants hereunder
      shall be decided by the Board. All decisions, determinations and interpretations
      of the Board shall be final and binding on all holders of any Options granted
      under the Plan.

    

    (b) Subject
      to the provisions and restrictions of the Plan, the Board shall have the
      authority to: (i) authorize any person to execute on behalf of the Company
      any
      agreements or other documents in connection with the grant of an Option under
      the Plan; (ii) approve forms of agreement for use under the Plan consistent
      with
      the terms of the Plan; and (iii) make all other determinations deemed necessary
      or advisable for the implementation of the Plan.

    

    5. Option
      Grants.

    

    (a) All
      grants of Options hereunder shall be automatic and nondiscretionary and shall
      be
      made strictly in accordance with the provisions of this Section 5. Neither
      the
      Board nor any person shall have any discretion to select which Outside Directors
      shall be granted Options, or to determine the number of shares of Stock to
      be
      covered by Options granted to Outside Directors, the timing of such Option
      grants or the exercise price thereof.

    

    (b) An
      option
      to purchase 6,000 shares of Stock shall be granted ("Initial Grant") to each
      Outside Director, such Initial Grant to be made to Outside Directors elected
      or
      appointed to the Board upon the date each such Outside Director becomes an
      Outside Director of the Company. Beginning with the first annual meeting of
      the
      Company's stockholders following the Initial Grant Date and thereafter at each
      subsequent annual meeting of the Company's stockholders, each Outside Director
      who continues as an Outside Director immediately following each such annual
      meeting shall be granted an option to purchase 6,000 shares of Stock
      ("Subsequent Grant"); provided that no Subsequent Grant shall be made to any
      Outside Director who has not served as an Outside Director of the Company,
      as of
      the time of such annual meeting, for at least one year. Each Subsequent Grant
      shall be made on the date of the annual stockholders' meeting in question.
      If
      any Option ceases to be exercisable in whole or in part, the shares which were
      subject to such Option but as to which the Option had not been exercised shall
      continue to be available under the Plan.

    

    6. Terms
      and Conditions of Options.

    

    (a) Each
      Option granted pursuant to the Plan shall be evidenced by an Option Agreement
      executed by the Company and the Optionee.

    

    (b) The
      exercise price per share of Options granted under the Plan shall be 100% of
      the
      Fair Market Value per share of Stock on the date of grant of the Option, subject
      to adjustment to the extent provided in Section 12 hereof.

    

    (c) Subject
      to the provisions in the Option Agreement and Sections 10(e) and 10(f) hereof,
      each Option shall vest and become exercisable in twelve (12) monthly
      installments after the date of grant.

    

    (d) The
      term
      of each Option shall be ten (10) years from the date of grant, unless a shorter
      period is required to comply with any applicable law, in which case such shorter
      period shall apply.

    

    7. Eligibility.
      Options
      may be granted only to Outside Directors. No Optionee shall have any rights
      as a
      stockholder of the Company as a result of the grant of an Option under the
      Plan
      or his or her exercise of such 

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    Option
      pending the actual issuance by the Company of the Stock subject to such Option.
      The Plan shall not confer upon any Outside Director any right with respect
      to
      continuation of service as a Director or nomination to serve as a Director,
      nor
      shall it interfere in any way with any rights that the Director or the Company
      may have to terminate his or her directorship at any time.

    

    8. Term
      of Plan; Effective Date.
      The
      Plan shall become effective on the Effective Date, subject to approval of the
      Plan by the stockholders of the Company. If the Effective Date precedes such
      stockholder approval, any Option granted under the Plan prior to such approval
      shall be conditioned upon approval by stockholders of the Plan. Options may
      be
      granted under the Plan at any time on or before the tenth anniversary of the
      date of adoption of the Plan.

    

    9. Payment
      Upon Exercise.
      Payment
      of the exercise price upon exercise of any Option shall be made in cash, by
      optionee's personal check, a certified check, bank draft, or postal or express
      money order payable to the order of the Company in lawful money of the United
      States; provided, however, that the Board, in its sole discretion, may permit
      an
      optionee to pay the option price in whole or in part (i) with shares of Stock
      owned by the optionee or with shares of Stock withheld from the shares otherwise
      deliverable to the optionee upon exercise of an option (in each case only to
      the
      extent that such an exercise of the option would not result in an accounting
      compensation charge with respect to the shares used to pay the option price);
      (ii) by delivery on a form prescribed by the Board of an irrevocable direction
      to a securities broker approved by the Board to sell shares of Stock and deliver
      all or a portion of the proceeds to the Company in payment for the Stock; (iii)
      by delivery of the optionee's promissory note with such recourse, interest,
      security, and redemption provisions as the Board in its discretion determines
      appropriate (provided, however, no promissory note may be accepted from an
      optionee that would be in violation of the Sarbanes-Oxley Act of 2002 or any
      other federal or state law); or (iv) in any combination of the foregoing. Any
      Stock used to exercise options shall be valued at its fair market value on
      the
      date of the exercise of the option.

    

    10. Exercise
      of Option.

    

    (a) An
      Option
      shall be deemed to be exercised when written notice of such exercise has been
      given to the Company in accordance with the terms of the Option Agreement by
      the
      person entitled to exercise the Option and full payment for the Stock has been
      received by the Company in accordance with Section 9 hereof. An Option may
      not
      be exercised for a fraction of a share of Stock.

    

    (b) If
      an
      Optionee ceases to serve as a Director (other than as a result of disability
      or
      death, or following a Change in Control), he or she may, but only within three
      (3) months after the date he or she ceases to be a Director, exercise his or
      her
      then outstanding Options to the extent that he or she was entitled to exercise
      them at the date of such termination. To the extent that the Optionee was not
      entitled to exercise an Option at the date of such termination, or does not
      exercise such Option (that he or she was entitled to exercise) within the time
      specified herein, the Option shall terminate.

    

    (c) Notwithstanding
      the provisions of Section 10(b) above, in the event an Optionee is unable to
      continue his or her service as a Director as a result of his or her total and
      permanent disability (as defined in Section 22(e) (3) of the Code), he or she
      may, within twelve (12) months from the date of such termination, exercise
      his
      or her then outstanding Options to the extent he or she was entitled to exercise
      them at the date of such termination. To the extent that the Optionee was not
      entitled to exercise an Option at the date of such termination, or does not
      exercise such Option (that he or she was entitled to exercise) within the time
      specified herein, the Option shall terminate.

    

    (d) If
      during
      the term of his or her Option, an Optionee (A) dies and had been in Continuous
      Status as a Director at the time of his or her death, or (B) dies within three
      (3) months after termination of Continuous Status as a Director, at any time
      within twelve (12) months following the date of the Optionee's death the Option
      may be exercised by the Optionee's personal representative or by a person who
      acquired the right to exercise the Option by bequest or intestate succession,
      but only to the extent the Optionee was entitled to exercise the Option at
      the
      time of his or her termination of Continuous Status as a Director.
      Notwithstanding the foregoing, in no event may the Option be exercised after
      the
      expiration of the term set forth in Section 6.

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    (e) Should
      any Corporate Transaction occur while an Optionee remains in Continuous Status
      as a Director, then each outstanding Option held by such Optionee shall become
      fully exercisable, immediately prior to the specified effective date of such
      Corporate Transaction, for all or any portion of the shares at the time
      represented by such Option and may be exercised with respect to any or all
      of
      such shares represented by the Option immediately prior to the specified
      effective date of such Corporate Transaction. Immediately following the
      consummation of the Corporate Transaction, each such option shall terminate
      unless assumed by the successor company or its parent, in which case the option
      shall remain so exercisable until the expiration or sooner termination of the
      Option term.

    

    (f) Should
      a
      Change in Control occur while an Optionee remains in Continuous Status as a
      Director, then each outstanding Option held by such Optionee shall become fully
      exercisable, immediately prior to the effective date of such Change in Control,
      for all of the shares at the time subject to such Option and may be exercised
      with respect to any or all of such shares represented by the Option. The Option
      shall remain so exercisable until the expiration or sooner termination of the
      Option term.

    

    (g) Notwithstanding
      the provisions of Sections 10(b) through 10(f) above, in no event may any Option
      be exercised after expiration of its term set forth in Section 6.

    

    11. Nontransferability
      of Options.
      To the
      extent required by Rule 16b-3 of the Exchange Act, no Option shall be
      transferable by an Optionee other than by operation of law or by will or by
      the
      laws of descent or distribution; provided that, if Rule 16b-3 is amended after
      the Board's adoption of the Plan to permit greater transferability of an Option
      hereunder, all Options hereunder shall be transferable to the fullest extent
      provided by Rule 16b-3 as so amended. In the event of any Rule 16b-3 permitted
      transfer of an Option, the transferee shall be entitled to exercise the Option
      in the same manner and only to the same extent as the Optionee (or his personal
      representative or the person who would have acquired the right to exercise
      the
      Option by bequest or intestate succession) would have been entitled to exercise
      the Option under Sections 9 and 10 had the Option not been
      transferred.

    

    12. Adjustment
      Upon Changes in Capitalization.
      In the
      event that the number of outstanding shares of Stock of the Company is changed
      through merger, consolidation, reorganization, recapitalization,
      reincorporation, stock split, stock dividend (in excess of 2%) or other change
      in the capital structure of the Company without consideration, the number of
      shares of Stock available under the Plan, the number of shares of Stock
      deliverable in connection with any Option and the exercise price per share
      of
      such Option shall be proportionately adjusted; provided, however, that no
      certificate or scrip representing fractional shares shall be issued and any
      resulting fractions of a share shall be ignored.

    

    13. Amendment
      and Termination of Plan.

    

    (a) The
      Board
      may amend the Plan from time to time; provided that no amendment may become
      effective until stockholder approval is obtained if the amendment (i) materially
      increases the aggregate number of shares of Stock that may be issued under
      the
      Plan, (ii) materially changes the class of individuals eligible to receive
      Options under the Plan, (iii) materially increases the benefits that may accrue
      to participants under the Plan, or (iv) modifies the Plan in such a way that
      stockholder approval of such modification is required pursuant to the rules
      under Section 16 of the Securities Exchange Act of 1934, as amended, by any
      national securities exchange or system on which the Stock is then listed or
      reported, by any regulatory body having jurisdiction with respect thereto or
      under any other applicable laws, rules or regulations. Notwithstanding the
      foregoing, the provisions set forth in Sections 5 and 6 of the Plan (and any
      other Sections of the Plan that affect the formula award terms required to
      be
      specified in the Plan by Rule 16b-3 of the Exchange Act and any successor to
      such Rule) shall not be amended periodically and in no event more than once
      every six (6) months, other than to comport with changes in the Code, the
      Employee Retirement Income Security Act of 1974, as amended, or any applicable
      rules and regulations thereunder.

    

    (b) The
      Board, without further approval of the stockholders, may at any time terminate
      or suspend the Plan. Except as otherwise provided herein, any such termination
      or suspension of the Plan shall not affect Options already granted hereunder,
      and such Options shall remain in full force and effect as if the Plan had not
      been terminated or suspended.

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (c) Except
      as
      otherwise provided herein, rights and obligations under any outstanding Option
      shall not be adversely altered or impaired by amendment, suspension or
      termination of the Plan, except with the consent of the person to whom the
      Option was granted or transferred.

    

    14. Conditions
      Upon Issuance of Stock.

    

    (a) Stock
      shall not be issued pursuant to the exercise of an Option unless the exercise
      of
      such Option and the issuance and delivery of such Stock pursuant thereto shall
      comply with all relevant provisions of law, including, without limitation,
      the
      Securities Act, the Exchange Act, the rules and regulations promulgated
      thereunder, state securities laws, and the requirements of any stock exchange
      or
      national market system upon which the Stock may then be listed, and shall be
      further subject to the approval of counsel for the Company with respect to
      such
      compliance.

    

    (b) Inability
      of the Company to obtain authority from any regulatory body having
      jurisdictional authority deemed by the Company's counsel to be necessary for
      the
      lawful issuance and sale of any Stock hereunder shall relieve the Company of
      any
      liability for failure to issue or sell such Stock.

    

    15. Reservation
      of Stock.
      The
      Company, during the term of the Plan, will at all times reserve and keep
      available such number of shares of Stock as shall be sufficient to satisfy
      the
      requirements of the Plan.

    

    16. Rule
      16b-3.

    

    (a) Transactions
      under the Plan are intended to comply with all applicable conditions of Rule
      16b-3 or its successors under the Exchange Act. To the extent any provision
      of
      the Plan or action by the Board fails to comply, it shall be deemed null and
      void, to the extent permitted by law and deemed advisable by the Board.
      Moreover, in the event the Plan does not include a provision required by Rule
      16b-3 to be stated therein in order to qualify the Plan as a formula plan,
      such
      provision (other than one relating to eligibility requirements, or the price
      and
      amount of awards) shall be deemed automatically to be incorporated by reference
      into the Plan.

    

    (b) If,
      subsequent to adoption of the Plan, Rule 16b-3 is amended to delete any of
      the
      Rule 16b-3 requirements addressed by the provisions of the Plan governing grants
      or awards to persons subject to Section 16(b) of the Exchange Act ("Insiders"),
      the Board may amend the Plan without stockholder approval (unless such approval
      is required by Rule 16b-3 as so amended) to delete or otherwise amend any such
      provisions no longer required for grants of Options under the Plan to be exempt
      from Section 16(b) liability under the Exchange Act or for Outside Directors
      to
      be able to make exempt Rule 16b-3 grants of stock options or other stock awards
      to Insiders under other stock option or stock incentive plans of the
      Company.Exhibit 10.2

                                ESCROW AGREEMENT

     This Escrow Agreement (the  "Agreement"),  entered into as of this 25th day
of  January,  2005,  is by  and  among  Basic  Empire  Corporation,  a  Delaware
corporation (the  "Company"),  each of the purchasers of shares of the Company's
common stock (the "Shares")  identified below  (collectively,  the "Purchasers")
and Securities Transfer Corporation (hereinafter referred to as "Escrow Agent").

                                    RECITALS
                                    --------

     WHEREAS,  the Company and the Purchasers have entered into a Stock Purchase
Agreement (the "Purchase Agreement") pursuant to which each Purchaser has agreed
to  purchase  from the  Company,  and the  Company  has  agreed  to sell to each
Purchaser, the number of Shares identified therein;

     WHEREAS,  pursuant to Section 3 of the Purchase Agreement,  the Company and
the  Purchasers  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 Purchase  Agreement  which is attached  hereto as
Exhibit A.

                                    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.  Each  Purchaser  and the Company  hereby
appoints  Securities  Transfer  Corporation as Escrow Agent to act in accordance
with the  Purchase  Agreement  and 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. The Purchase Price for the transaction shall be
deposited with the Escrow Agent in immediately  available funds by wire transfer
or cashiers check at Closing (the "Escrow Funds").

     3.  Segregation of Escrow Funds.  The Escrow Funds shall be segregated from
the assets of Escrow  Agent and held in trust for the benefit of the Company and
the Purchasers in accordance herewith.

<PAGE>

     4. Receipt and Investment of Funds.

     (a) Escrow Agent agrees to place the Escrow Funds in a non-interest bearing
and federally insured depository account.  Subject to Section 7.3 hereof, Escrow
Agent shall have no  liability  for any loss  resulting  from the deposit of the
Escrow Funds.

     (b) The Escrow  Agent shall  cause to be prepared  all income and other tax
returns  and  reports  that the  Escrow  Agent,  in its sole  discretion,  deems
necessary or advisable in order to comply with all tax and other laws, rules and
regulations  applicable  to the Escrow  Funds.  The parties agree to provide the
Escrow  Agent with  certified  tax  identification  numbers for each  individual
entitled to distributions  from the Escrow Fund by furnishing  appropriate forms
W-9 (or  Forms  W-8,  in the case of  non-U.S.  persons)  and  other  forms  and
documents that the Escrow Agent may  reasonably  request within twenty (20) days
after the date of such request.

     5. Escrow Termination Date; Disbursement of the Escrow Funds.

     This Agreement shall terminate upon (i) receipt of written notice signed by
the  Company  and each  Purchaser  confirming  the  filing  of the  Registration
Statement  relating to the Shares  required to be filed by the Company under the
Purchase  Agreement,  (ii) disbursement of the Chinamerica  Expenses (as defined
below),   (iii)   disbursement  of  the  Program  Escrow  Agreement,   and  (iv)
disbursement of the Remaining Balance (the "Escrow Termination Date");  provided
however,  that the Escrow  Termination  Date may be  extended  by joint  written
instructions  to Escrow Agent signed by the Company and each  Purchaser.  On the
Escrow  Termination  Date, Escrow Agent shall disburse the Escrow Funds less the
Program  Funds  (i.e.  $250,000)  under the  Purchase  Agreement  and less up to
$15,000  in  expenses  payable  to  Chinamerica  Fund,  LLP  ("Chinamerica")  or
Chinamerica's  managing  partner  upon  submission  by such  entity of a written
expense  report  (the  "Chinamerica  Expenses"),  and release the balance in the
amount of  $735,000,  to the  Company as set forth in Section 2 of the  Purchase
Agreement  (the  "Remaining  Balance").  The Program  Funds shall be held by the
Escrow Agent pending  execution of a separate escrow  agreement among the Escrow
Agent,  the Company and each Purchaser  providing for disbursement of such funds
(the "Program Escrow Agreement"). Upon the Escrow Termination Date all of Escrow
Agent's  liabilities  and  obligations in connection with the Escrow Funds shall
terminate

     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
Funds,  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 portion of the Escrow Funds 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 that portion of the Escrow Funds.

                                                                          Page 2

<PAGE>

     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 or  depositing  the Escrow
Funds.  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 governed  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 the  Purchasers  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 incurred by it, the Company and
each Purchaser,  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.

                                                                          Page 3

<PAGE>

     8.  Compensation  of Escrow  Agent.  The Company  will pay Escrow  Agent an
amount equal to Escrow Agent's  standard fee schedule for all services  rendered
by Escrow Agent hereunder. A copy of the Escrow Agent's standard fee schedule is
attached hereto as Exhibit B.

     9. Resignation of Escrow Agent. At any time, upon twenty (20) 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 all monies and property held hereunder upon  presentation  of a document
appointing the new escrow agent and evidencing  its acceptance  thereof.  If, by
the end of the  twenty  (20) 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 Funds into the
registry of any court having jurisdiction.

     10. Method of Distribution  by Escrow Agent.  All  disbursements  by Escrow
Agent to a party to this  Agreement will be made by wire transfer of immediately
available funds to an account  designated in writing by the party to receive any
such payment.

     11.  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.

     12.  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 to the following addresses:

     If to Escrow Agent:    Securities Transfer Corporation
                            2591 Dallas Parkway, Suite 102
                            Frisco, Texas 75034
                            Attention: Kevin Halter

     If to the Company:     Basic Empire Corporation
                            Room 511, 5 Floor, Wing On Plaza
                            62 Mody Road, Tsim Sha Tsui, KL, Hong Kong
                            Attention: Chang Yu

     If to the Purchasers:  Addresses as set forth on the signature page hereto

or to such other address and to the attention of such other person as any of the

                                                                          Page 4

<PAGE>

above may have  furnished  to the other  parties in  writing  and  delivered  in
accordance with the provisions set forth above.

     13.  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.

     14.  Assignment  and  Modification.  This  Agreement  and  the  rights  and
obligations  hereunder of any of the parties hereto may not be assigned  without
the prior written consent of the other parties hereto. Subject to the foregoing,
this  Agreement  will be  binding  upon and inure to the  benefit of each of the
parties hereto and their respective  successors and permitted assigns.  No other
person will acquire or have any rights under,  or by virtue of, this  Agreement.
No portion of the Escrow  Funds shall be subject to  interference  or control by
any creditor of any party hereto, or be subject to being taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of any
such party  hereto  prior to the  disbursement  thereof to such party  hereto in
accordance with the provisions of this Agreement.  This Agreement may be changed
or modified only in writing signed by all of the parties hereto.

     15.  APPLICABLE  LAW. THIS AGREEMENT  SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF 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 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.

     16. Headings.  The headings contained in this Agreement are for convenience
of reference only and shall not affect the construction of this 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  Agreement,  the prevailing  party shall be entitled to recover  reasonable
attorneys' fees from the other party,  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.

                                                                          Page 5

<PAGE>

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

COMPANY:                                      BASIC EMPIRE CORPORATION

                                              By: /s/ Chang Yu
                                                 -------------------------------
                                              Its: President
                                                  ------------------------------

ESCROW AGENT:                                 SECURITIES TRANSFER CORPORATION

                                              By: /s/ Kevin Halter, Jr.
                                                 -------------------------------
                                              Its: President
                                                  ------------------------------

PURCHASERS:
                                              Chinamerica Fund, LP

                                              By: /s/ Beau Johnson

                                              Managing Director, General Partner

                                              Address: 2909 St. Andrews
                                                      --------------------------
                                                       Richardson, Texas 75082
                                              ----------------------------------

                                              ----------------------------------

                                              ----------------------------------

                                              ----------------------------------

                                              Gary C. Evans

                                              By: /s/ Gary C. Evans
                                                 -------------------------------
                                              Address: 2100 La Rochelle
                                                      --------------------------
                                                       Flower Mound, Texas 75022
                                              ----------------------------------

                                                                          Page 6

<PAGE>

                                    EXHIBIT A
                                    ---------
                               PURCHASE AGREEMENT

                                                                          Page 7

<PAGE>

                                    EXHIBIT B
                                    ---------
                              STANDARD FEE SCHEDULE

                                                                          Page 8

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