SECURITIES ESCROW AGREEMENT
THIS SECURITIES ESCROW AGREEMENT (the " Agreement "), dated as of April 27, 2010, is entered into by and among Eco Building International,
a Nevada corporation (the " Company "), each of the several purchasers signatory hereto (each such purchaser, a " Purchaser
" and, collectively, the " Purchasers "), Expert Venture Limited, a company organized in the British Virgin Islands (the " Principal Stockholder
"), and Anslow & Jaclin, LLP, with an address at 195 Route 9 South, Suite 204, Manalapan, New Jersey 07726 (the " Escrow Agent "). Capitalized terms used but not defined herein
shall have the meanings set forth in the Purchase Agreement (as defined below).
WITNESSETH:
WHEREAS, the Purchasers will be purchasing from the Company units consisting of 2,272,727 shares of the Company's Series A Convertible Preferred Stock, par value $0.001 per share (the
? Series A Preferred "), initially convertible into 2,272,727 shares of the Company's common stock, par value $0.001 per share (the " Common Stock
"), and warrants to purchase, in the aggregate, 909,091 shares of Common Stock (the " Warrants ") pursuant to that certain Securities Purchase Agreement
(the " Purchase Agreement ") dated as of the date hereof (the " Closing Date ") by and among the Company and the
Purchasers (the " Financing ");
WHEREAS, the Company has issued shares of its Common Stock to the Principal Stockholder pursuant to that certain Share Exchange Agreement dated as of April 27, 2010 by and among City Zone Holdings Limited, a British Virgin Islands
company (" City Zone "), the Company and the original controlling stockholders of the Company (the " Share Exchange Agreement "). Upon
consummation of the transactions contemplated by the Share Exchange Agreement, City Zone, together with its subsidiaries, became the wholly owned subsidiaries of the Company (the " Share Exchange
Transaction ");
WHEREAS, the Company and the Purchasers agree that the capitalization table upon which the transactions contemplated by this Agreement and the Purchase Agreement are based is set forth as Schedule A hereto; and
WHEREAS, as an inducement to the Purchasers to enter into the Purchase Agreement, the Principal Stockholder has agreed to place the Escrow Shares (as hereinafter defined) into escrow for the benefit of the Purchasers in the event
the Company fails to achieve the following financial performance thresholds for the 12-month periods ending December 31, 2010 (" 2010 ") and December 31, 2011
(" 2011 "):
(a) For 2010, Net Income, as reported by the Company in its audited financial statements for 2010 (the " 2010 Financial Statements
?) equals or exceeds eleven million dollars ($11,000,000) (the " 2010 Performance Threshold ");
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(b) For 2011, Net Income, as reported by the Company in its audited financial statements for 2011 (the " 2011 Financial Statements
?) equals or exceeds fifteen million dollars ($15,000,000) (the " 2011 Performance Threshold " and together with the 2010 Performance Threshold will be referred to as the "
Performance Thresholds "); and
(c) For the purposes hereof, " Net Income " shall be as defined in accordance with US GAAP, provided, however, that Net Income for each of 2010 and 2011
shall be increased by any non-cash charges incurred (i) as a result of the Financing, including without limitation, as a result of the issuance of the Warrants and upon conversion of the Series A Preferred, and (ii) as a result of the release of the Escrow
Shares to the Principal Stockholder pursuant to the terms of this Agreement.
WHEREAS, the Company and the Purchasers have requested that the Escrow Agent hold the Escrow Shares 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.
NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally
bound hereby, the parties agree as follows:
ARTICLE I
TERMS OF THE ESCROW
1.1. The parties hereby agree to establish an escrow account (the " Escrow Account ") with the Escrow Agent whereby the Escrow Agent shall hold the Escrow
Shares as contemplated by this Agreement.
1.2. Upon the execution of this Agreement, the Principal Stockholder shall deliver to the Escrow Agent stock certificates equal to the number of shares of Common Stock constituting one hundred percent (100%) of the shares of
Common Stock underlying the Series A Preferred Shares indicated on Schedule A hereto (such shares of Common Stock delivered by the Principal Stockholder plus such additional number of shares of Common Stock as may be required to be deposited
hereunder pursuant to Sections 1.3, 1.4 or 1.5 hereof shall be collectively referred to in this Agreement as the " Escrow Shares "), along with updated stock powers executed in blank,
signature medallion guaranteed or in other form and substance acceptable for transfer. Fifty percent (50%) of the Escrow Shares shall be allocated for the 2010 Performance Threshold and shall be referred to as the "
2010 Escrow Shares " and the remaining fifty percent (50%) of the Escrow Shares shall be allocated for the 2011 Performance Threshold and shall be referred to as the " 2011 Escrow Shares
".
1.3. The parties hereby agree that the Escrow Shares shall be distributed based on and subject to the achievement of the 2010 Performance Thresholds as set forth below:
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(i) If the Company achieves less than 50% of the 2010 Performance Threshold, then the number of the 2010 Escrow Shares to be distributed to each Purchaser shall be calculated as follows:
(a) A = X
Y
(b) B = (A)(Z)
Where:
A =
such Purchaser's percentage ownership of 2010 Escrow Shares
B =
the number of 2010 Escrow Shares to be distributed to such Purchaser
X =
the number of shares of Series A Preferred (on an as converted basis) and Conversion Shares owned by such Purchaser as of the date of distribution of the 2010 Escrow Shares (the "
Distribution Date ")
Y =
number of Series A Preferred Shares issued on the Closing Date (on an as-converted basis)
Z =
the 2010 Escrow Shares
Within five (5) business days of the Purchasers' receipt of the 2010 Financial Statements pursuant to Section 1.7 hereof, the Purchasers shall provide sole written instructions to the Escrow Agent instructing the Escrow Agent
to issue and deliver the 2010 Escrow Shares to the Purchasers in accordance with the calculation above. Any 2010 Escrow Shares remaining after disbursement to the Purchasers in accordance with the calculation above shall be returned to the Principal
Stockholder.
(ii) If the Company achieves at least 50% but less than 95% of the 2010 Performance Threshold, the Escrow Agent shall deliver to each Purchaser its number of 2010 Escrow Shares in accordance with the calculation below.
(a) A = X
Y
(b) B = 2*(Z*A)
Where:
A =
such Purchaser's percentage ownership of 2010 Escrow Shares
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B =
the number of 2010 Escrow Shares to be distributed to such Purchaser
X =
the number of shares of Series A Preferred (on an as converted basis) and Conversion Shares owned by such Purchaser as of the Distribution Date
Y =
number of Series A Preferred Shares issued on the Closing Date (on an as-converted basis)
Z =
the 2010 Escrow Shares multiplied by the Lowest Threshold Percentage
For purposes hereof, the " Lowest Threshold Percentage " means the percentage by which the Performance Threshold was not achieved. By way of example, if the
Company's Net Income reported on the 2010 Financial Statements is an amount equal to 70% of the 2010 Performance Threshold, the Lowest Threshold Percentage would be 30% (100%-70%). Within five (5) business days of Maxim
Group, LLC's, the Company's Placement Agent (the "Placement Agent" ) receipt of the 2010 Financial Statements pursuant to Section 1.6 hereof, the the Placement Agent, in consultation with the Purchasers,
shall provide written instructions to the Escrow Agent instructing the Escrow Agent to issue and deliver the Escrow Shares to the Purchasers in accordance with the calculation above. Any 2010 Escrow Shares remaining after disbursement to the Purchasers
in accordance with the calculation above shall be returned to the Principal Stockholder.
(iii) If the Company achieves at least 95% of each of the 2010 Performance Thresholds, then the 2010 Escrow Shares shall returned to the Principal Stockholder.
(iv) Notwithstanding anything to the contrary set forth herein, only those Purchasers who own shares of Series A Preferred or Conversion Shares of the Company at the time that the 2010 Escrow Shares are distributed hereunder
shall be entitled to receive 2010 Escrow Shares calculated based on their ownership interest at the ti
