Exhibit 10.2
ESCROW AGREEMENT
This Escrow Agreement (the "Agreement"), dated June 22, 2006, is entered
into by and among MGCC Investment Strategies, Inc., a Nevada corporation (the
"Company"), Sterne Agee & Leach, Inc., a Delaware corporation, as placement
agent and representative of the Subscribers (the "Subscriber Representative"),
Empower Century Limited, a British Virgin Islands corporation ("Empower"),
Choice Inspire Limited, a British Virgin Island corporation ("Choice," and,
together with Empower, the "Stockholders"), and Securities Transfer Corporation
(hereinafter referred to as "Escrow Agent"). All capitalized terms used but not
defined herein shall have the meanings assigned them in the various Subscription
Agreements, between Wonder Auto Limited, a BVI corporation ("Wonder") and each
Subscriber in the Offering (each a "Subscriber" and collectively, the
"Subscribers").
BACKGROUND
As an inducement to the Subscribers to enter into the Subscription
Agreement, the Stockholders agreed that the Stockholders would place the "Escrow
Shares" (as hereinafter defined) into escrow for the benefit of the Subscribers
in the event the Company failed to satisfy the "Performance Thresholds" (as
hereinafter defined). Pursuant to the requirements of the Subscription
Agreement, the Company, the Stockholders and the Subscriber Representative have
agreed to establish an escrow on the terms and conditions set forth in this
Agreement and the Escrow Agent has agreed to act as escrow agent pursuant to the
terms and conditions of this Agreement.
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 Subscriber Representative on behalf of
the Subscribers, the Stockholders and the Company hereby appoint Securities
Transfer Corporation as Escrow Agent to act in accordance with the terms and
conditions set forth in this Agreement, and Escrow Agent hereby accepts such
appointment and agrees to act in accordance with such terms and conditions.
2. Establishment of Escrow. Upon the execution of this Agreement, the
Stockholders shall deliver to the Escrow Agent four stock certificates
evidencing 1,347,644 shares in the aggregate, to be equitably adjusted for stock
splits, stock dividends and similar adjustments (collectively, the "Escrow
Shares") of the Company's common capital stock along with stock powers executed
in blank. The first two certificates (one from each Stockholder) shall represent
673,822 shares in the aggregate, to be equitably adjusted for stock splits,
stock dividends and similar adjustments (the "2006 Escrow Shares") and the
second two certificates (one from each Stockholder) shall evidence 673,822
shares in the aggregate, to be equitably adjusted for stock splits, stock
dividends and similar adjustments (the "2007 Escrow Shares").
3. Representations of The Stockholders. The Stockholders hereby represent
and warrant to the Subscribers and the Subscriber Representative as follows:
(i) The Escrow Shares are validly issued, fully paid and
nonassessable shares of the Company, and free and clear of all pledges,
liens and encumbrances.
(ii) Performance of this Agreement and compliance with the
provisions hereof will not violate any provision of any applicable law and
will not conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon, any of
the properties or assets of the Stockholders pursuant to the terms of any
indenture, mortgage, deed of trust or other agreement or instrument
binding upon the Stockholders, other than such breaches, defaults or liens
which would not have a material adverse effect taken as a whole.
4. Disbursement of Escrow Shares. Wonder covenanted to the Subscribers
that Wonder would attain the following financial performance thresholds (the
"Performance Thresholds"): $8,140,000 million of Net Income ("NI") for the
fiscal year ("FY06") ending December 31, 2006 (the "2006 Threshold") and
$12,713,760 of NI for the fiscal year ("FYO7") ending December 31, 2007 (the
"2007 Threshold"). The Company will provide the Subscriber Representative with
(a) its audited financial statements, prepared in accordance with US GAAP, on or
before March 31, 2007 so as to allow the Subscriber Representative the
opportunity to evaluate whether the 2006 Threshold was attained and (b) its
audited financial statements, prepared in accordance with U.S. GAAP, on or
before March 31, 2008 so as to allow the Subscriber Representative the
opportunity to evaluate whether the 2007 Threshold was attained. If the 2006
Threshold is not achieved, the Company shall cause its special securities
counsel, Thelen Reid & Priest LLP, to provide written instruction to the Escrow
Agent instructing the Escrow Agent to issue and deliver within ten business days
following delivery of the FY06 financial statements to the Subscriber
Representative certificates registered in the name of each Subscriber evidencing
the Subscriber's pro rata portion of the 2006 Escrow Shares. If the 2007
Threshold is not achieved, the Company shall cause its special securities
counsel, Thelen Reid & Priest LLP, to provide written instruction to the Escrow
Agent to issue and deliver within ten business days following delivery of the
FY07 financial statements to the Subscriber Representative certificates
registered in the name of each Subscriber evidencing the Subscriber's pro rata
portion of the 2007 Escrow Shares. Each Subscriber's portion of the required
number of Escrow Shares shall be equal to such Subscriber's pro rata portion of
such required number of Escrow Shares (based upon the respective number of
shares of Wonder's capital stock acquired by each Subscriber pursuant to the
Subscription Agreement). Notwithstanding anything to the contrary herein, only
those Subscribers who remain stockholders of the Company at the time that any
Escrow Shares become deliverable hereunder shall be entitled to their pro rata
portion of such Escrow Shares. The Subscriber Representative shall thereafter
promptly deliver to the Subscribers such certificates. The Escrow Agent need
only rely on the letter of instruction from Thelen Reid & Priest LLP in this
regard. If the 2006 Threshold or the 2007 Threshold is achieved, the Company
shall cause Thelen Reid & Priest LLP to provide written instruction to the
Escrow Agent, for the release of the 2006 Escrow Shares or 2007 Escrow Shares,
respectively, to the Stockholders.
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5. Duration. This Agreement shall terminate on the distribution of all the
Escrow Shares in accordance with Section 4 above.
6. Interpleader. Should any controversy arise among the parties hereto
with respect to this Agreement or with respect to the right to receive the
Escrow Shares, Escrow Agent shall have the right to consult counsel and/or to
institute an appropriate interpleader action to determine the rights of the
parties. Escrow Agent is also hereby authorized to institute an appropriate
interpleader action upon receipt of a written letter of direction executed by
the parties so directing Escrow Agent. If Escrow Agent is directed to institute
an appropriate interpleader action, it shall institute such action not prior to
thirty (30) days after receipt of such letter of direction and not later than
sixty (60) days after such date. Any interpleader action instituted in
accordance with this Section 6 shall be filed in any court of competent
jurisdiction in Dallas County, Texas, and the Escrow Shares in dispute shall be
deposited with the court and in such event Escrow Agent shall be relieved of and
discharged from any and all obligations and liabilities under and pursuant to
this Agreement with respect to the Escrow Shares.
7. Exculpation and Indemnification of Escrow Agent.
(a) Escrow Agent is not a party to, and is not bound by or charged
with notice of any agreement out of which this escrow may arise. Escrow Agent
acts under this Agreement as a depositary only and is not responsible or liable
in any manner whatsoever for the sufficiency, correctness, genuineness or
validity of the subject matter of the escrow, or any part thereof, or for the
form or execution of any notice given by any other party hereunder, or for the
identity or authority of any person executing any such notice. Escrow Agent will
have no duties or responsibilities other than those expressly set forth herein.
Escrow Agent will be under no liability to anyone by reason of any failure on
the part of any party hereto (other than Escrow Agent) or any maker, endorser or
other signatory of any document to perform such person's or entity's obligations
hereunder or under any such document. Except for this Agreement and instructions
to Escrow Agent pursuant to the terms of this Agreement, Escrow Agent will not
be obligated to recognize any agreement between or among any or all of the
persons or entities referred to herein, notwithstanding its knowledge thereof.
(b) Escrow Agent will not be liable for any action taken or omitted
by it, or any action suffered by it to be taken or omitted, in good faith and in
the exercise of its own best judgment, and may rely conclusively on, and will be
protected in acting upon, any order, notice, demand, certificate, or opinion or
advice of counsel (including counsel chosen by Escrow Agent), statement,
instrument, report or other paper or document (not only as to its due execution
and the validity and effectiveness of its provisions, but also as to the truth
and acceptability of any information therein contained) which is reasonably
believed by Escrow Agent to be genuine and to be signed or presented by the
proper person or persons. The duties and responsibilities of the Escrow Agent
hereunder shall be determined solely by the express provisions of this Agreement
and no other or further duties or responsibilities shall be implied, including,
but not limited to, any obligation under or imposed by any laws of the State of
Texas upon fiduciaries.
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(c) Escrow Agent will be indemnified and held harmless, jointly and
severally, by the Company and the Stockholders from and against any expenses,
including reasonable attorneys' fees and disbursements, damages or losses
suffered by Escrow Agent in connection with any claim or demand, which, in any
way, directly or indirectly, arises out of or relates to this Agreement or the
services of Escrow Agent hereunder; except, that if Escrow Agent is guilty of
willful misconduct, fraud or gross negligence under this Agreement, then Escrow
Agent will bear all losses, damages and expenses arising as a result of such
willful misconduct, fraud or gross negligence. Promptly after the receipt by
Escrow Agent of notice of any such demand or claim or the commencement of any
action, suit or proceeding relating to such demand or claim, Escrow Agent will
notify the other parties hereto in writing. For the purposes hereof, the terms
"expense" and "loss" will include all amounts paid or payable to satisfy any
such claim or demand, or in settlement of any such claim, demand, action, suit
or proceeding settled with the express written consent of the parties hereto,
and all costs and expenses, including, but not limited to, reasonable attorneys'
fees and disbursements, paid or incurred in investigating or defending against
any such claim, demand, action, suit or proceeding. The provisions of this
Section 7 shall survive the termination of this Agreement.
8. Compensation of Escrow Agent. The Company will pay Escrow Agent $1,500
for all services rendered by Escrow Agent hereunder.
9. Resignation of Escrow Agent. At any time, upon ten (10) days' written
notice to the Company, Escrow Agent may resign and be discharged from its duties
as Escrow Agent hereunder. As soon as practicable after its resignation, Escrow
Agent will promptly turn over to a successor escrow agent appointed by the
Company the Escrow Shares held hereunder upon presentation of a document
appointing the new escrow agent and evidencing its acceptance thereof. If, by
the end of the 10-day period following the giving of notice of resignation by
Escrow Agent, the Company shall have failed to appoint a successor escrow agent,
Escrow Agent may interplead the Escrow Shares into the registry of any court
having jurisdiction.
10. Records. Escrow Agent shall maintain accurate records of all
transactions hereunder. Promptly after the termination of this Agreement or as
may reasonably be requested by the parties hereto from time to time before such
termination, Escrow Agent shall provide the parties hereto, as the case may be,
with a complete copy of such records, certified by Escrow Agent to be a complete
and accurate account of all such transactions. The authorized representatives of
each of the parties hereto shall have access to such books and records at all
reasonable times during normal business hours upon reasonable notice to Escrow
Agent.
11. Notice. All notices, communications and instructions required or
desired to be given under this Agreement must be in writing and shall be deemed
to be duly given if sent by registered or certified mail, return receipt
requested, or overnight courier 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 or the Stockholders: c/o Wonder Auto Limited
No. 56 Lingxi Street
Taihe District
Jinzhou City, Liaoning
People's Republic of China 121013
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If to the Subscriber Sterne Agee & Leach, Inc.
Representative: Corporate Headquarters
800 Shades Creek Parkway, Suite 700
Birmingham, Alabama 35209
or to such other address and to the attention of such other person as any of the
above may have furnished to the other parties in writing and delivered in
accordance with the provisions set forth above.
12. Execution in Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile execution and
delivery of this Agreement is legal, valid and binding for all purposes.
13. Assignment and Modification. This Agreement and the rights and
obligations hereunder of any of the parties hereto may not be assigned without
the prior written consent of the other parties hereto. Subject to the foregoing,
this Agreement will be binding upon and inure to the benefit of each of the
parties hereto and their respective successors and permitted assigns. No other
person will acquire or have any rights under, or by virtue of, this Agreement.
No portion of the Escrow Shares shall be subject to interference or control by
any creditor of any party hereto, or be subject to being taken or reached by any
legal or equitable process in satisfaction of any debt or other liability of any
such party hereto prior to the disbursement thereof to such party hereto in
accordance with the provisions of this Agreement. This Agreement may be changed
or modified only in writing signed by all of the parties hereto.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS APPLICABLE TO CONTRACTS MADE AND
TO BE PERFORMED THEREIN, EXCEPT THAT THE PORTIONS OF THE TEXAS TRUST CODE,
SECTION 111.001, ET SEQ. OF THE TEXAS PROPERTY CODE, CONCERNING FIDUCIARY DUTIES
AND LIABILITIES OF TRUSTEES SHALL NOT APPLY TO THIS AGREEMENT. THE PARTIES
EXPRESSLY WAIVE SUCH DUTIES AND LIABILITIES, IT BEING THEIR INTENT TO CREATE
SOLELY AN AGENCY RELATIONSHIP AND HOLD THE ESCROW AGENT LIABLE ONLY IN THE EVENT
OF ITS WILLFUL MISCONDUCT, FRAUD, OR GROSS NEGLIGENCE. ANY LITIGATION CONCERNING
THE SUBJECT MATTER OF THIS AGREEMENT SHALL BE EXCLUSIVELY PROSECUTED IN THE
COURTS OF DALLAS COUNTY, TEXAS, AND ALL PARTIES CONSENT TO THE EXCLUSIVE
JURISDICTION AND VENUE OF THOSE COURTS.
15. Headings. The headings contained in this Agreement are for convenience
of reference only and shall not affect the construction of this Agreement.
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16. Attorneys' Fees. If any action at law or in equity, including an
action for declaratory relief, is brought to enforce or interpret the provisions
of this Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party (unless such other party is the Escrow
Agent), which fees may be set by the court in the trial of such action or may be
enforced in a separate action brought for that purpose, and which fees shall be
in addition to any other relief that may be awarded.
17. Registration Rights. If any Escrow Shares are distributed to the
Subscribers hereunder, then the Company shall use commercially reasonable
efforts to file a registration statement relating to the resale by the
Subscribers of the Escrow Shares so distributed within 30 days following the
date that the Company is obligated hereunder to deliver any such Escrow Shares
to the Subscribers and the Company shall thereafter use commercially reasonable
efforts to cause such registration statement to become effective. The
Subscribers shall provide such information to the Company as the Company may
reasonably request in order to prepare such registration statement, including,
without limitation, delivery to the Company of Selling Stockholder
questionnaires. The Company shall cause such registration statement to remain
effective until each Subscriber has sold any Escrow Shares received by it
thereunder or until each Subscriber is permitted to resell all of the Escrow
Shares received hereunder at one time pursuant to Rule 144(k) of the Securities
Act of 1933, as amended.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date set forth opposite their respective names.
MGCC INVESTMENT STRATEGIES, INC.
By: /s/Timothy Halter
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Its: President
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Dated: June 22, 2006
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EMPOWER CENTURY LIMITED
By: /s/Qingjie Zhao
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Its: Chairman
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Dated: June 22, 2006
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CHOICE INSPIRE LIMITED
By: /s/Qingjie Zhao
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Its: Chairman
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Dated: June 22, 2006
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SECURITIES TRANSFER CORPORATION
By: /s/Kevin Halter
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Its: President
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Dated: June 20, 2006
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STERNE AGEE & LEACH, INC.
As representative of the Subscribers
By: /s/ W. Barry McRac
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Its: Managing Director
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Dated: June 22, 2006
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[Signature Page to Make Good Escrow Agreement]