INDEMNITY ESCROW AGREEMENT
THIS INDEMNITY ESCROW AGREEMENT ("AGREEMENT") is made and entered into this
10th day of July, 2003 by and among (i) O2Diesel Corporation, a Washington
corporation ("O2DIESEL"), (ii) AAE Technologies International PLC, a corporation
governed by the laws of the Republic of Ireland (the "COMPANY"), (iii) each of
the shareholders of the Company listed on Schedule A attached hereto (the "MAJOR
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SHAREHOLDERS"), (iv) Xxxxxx Xxxxxxx or a partner in XxXxxxx Xxxxxxx, as the
representative of all of the shareholders of the Company accepting the
recommended offer dated June 18, 2003 by O2Diesel (the "STOCKHOLDERS'
REPRESENTATIVE"), and (v) Comerica Bank (the "ESCROW AGENT"). O2DIESEL, the
Company, the Major Shareholders and the Stockholders' Representative are
sometimes hereinafter referred to collectively as the "INDEMNIFICATION PARTIES."
B A C K G R O U N D:
WHEREAS, O2DIESEL has commenced an offer to acquire all of the issued and
outstanding ordinary shares of the Company in exchange for 18,000,000 shares of
common stock of O2DIESEL (the "O2DIESEL EXCHANGE SHARES") pursuant to the terms
set forth in the Recommended Acquisition Offer Document dated 16 June 2003 (the
"SHARE EXCHANGE OFFER");
WHEREAS, the board of the Company has recommended that the shareholders of
the Company (collectively, the "STOCKHOLDERS") accept the Share Exchange Offer;
WHEREAS, as a condition to closing of the Share Exchange Offer, O2DIESEL,
the Company and the Major Shareholders were required to enter into that certain
Support Agreement, dated as of June 17, 2003 (the "SUPPORT AGREEMENT"), pursuant
to which the Company and the Major Shareholders agreed to indemnify and hold
O2DIESEL, its directors, officers, employees, agents, representatives and other
affiliates of O2DIESEL harmless in respect to any claim, demand, action, cause
of action, damage, loss, cost, liability or expense arising out of certain
breaches of representations, warranties and covenants of the Company and/or the
Major Shareholders under Section 6.1 of the Support Agreement (the
"INDEMNIFICATIONS");
WHEREAS, under the terms of the Share Exchange Offer, (i) ten percent (10%)
of all of the O2DIESEL Exchange Shares issued to the Stockholders pursuant to
the Share Exchange Offer and any compulsory offer contemplated in connection
with the Share Exchange Offer (collectively, the "GENERAL ESCROWED SHARES") and
(ii) one hundred percent (100%) of the O2DIESEL Exchange Shares issued to the
Major Shareholders (collectively, the "MAJOR SHAREHOLDER ESCROWED SHARES") are
required to be placed into escrow (the "ESCROW") pursuant to the terms of this
Indemnity Escrow Agreement to secure payment of the Indemnifications on behalf
of the Company and the Major Shareholders; and
WHEREAS, Section 6.10 of the Support Agreement requires that (a) promptly
following the Closing of the Share Exchange Offer and any subsequent compulsory
offer contemplated in connection with the Share Exchange Offer, O2DIESEL shall
deliver to the Escrow Agent for deposit into the Escrow (i) the General Escrowed
Shares for the benefit of each of the Stockholders, and (ii) the Major
Shareholder Escrowed Shares for the benefit of each of the Major Shareholders,
and (b) thereafter, O2DIESEL shall deliver to the Escrow Agent for deposit into
the Escrow any cash and non-cash dividends and other property at any time
received or otherwise distributed on, in respect of or in exchange for any or
all of the foregoing, all securities hereafter issued in substitution for any of
the foregoing, all certificates and instruments representing or evidencing such
securities, all cash and non-cash proceeds of all of the foregoing property and
all rights, titles, interest, privileges and preferences appertaining or
incident to the General Escrowed Shares and the Major Shareholder Escrowed
Shares (collectively, the "DISTRIBUTIONS")(General Escrowed Shares, the Major
Shareholder Escrowed Shares and the Distributions are collectively referred to
as the "ESCROW PROPERTY"),
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements set forth herein and in the Support Agreement and the terms and
conditions set forth in the Share Exchange Offer, and intending to be legally
bound hereby, the parties agree as follows:
1. Deposit and Escrow Periods. (a) The Indemnification Parties agree and
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acknowledge that (i) promptly following the Closing of the Share Exchange Offer
and any subsequent compulsory offer contemplated in connection with the Share
Exchange Offer, O2DIESEL shall deliver to the Escrow Agent for deposit into the
Escrow (A) the General Escrowed Shares for the benefit of each of the
Stockholders, and (B) the Major Shareholder Escrowed Shares for each of the
Major Shareholders, and (ii) thereafter, O2DIESEL shall deliver to the Escrow
Agent for deposit into the Escrow any Distributions.
(b) Upon each deposit of Escrow Property, the Escrow Agent shall
acknowledge receipt of stock certificates representing the General Escrowed
Shares and the Major Shareholder Escrowed Shares, bearing a restrictive legend
providing that the shares represented by such certificates may not be offered,
sold, exchanged, transferred or otherwise disposed of prior to the expiration of
the pledge of such shares and any Distributions delivered by O2DIESEL as
collateral pursuant to the Support Agreement. The Escrow Agent shall hold the
Escrow Property and shall administer the same in accordance with the terms of
this Agreement.
(c) The term of the Escrow for the General Escrowed Shares and any
Distributions thereto shall be a period of one year commencing on the closing
date of the Share Exchange Offer (the "GENERAL ESCROW PERIOD"). The term of the
Escrow for the Major Shareholder Escrowed Shares and any Distributions thereto
shall be a period of eighteen months commencing on the closing date of the Share
Exchange Offer (the "ADDITIONAL ESCROW PERIOD").
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2. Stockholders' Representative. In accordance with Section 6.1 of the
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Support Agreement and in accordance with the terms of the Share Exchange Offer
and the related Form of Acceptance and Authority, the Stockholders shall be
bound by any and all actions taken by the Stockholders' Representative on their
behalf.
(a) O2DIESEL and the Escrow Agent shall be entitled to rely upon any
communication or writing given or executed by the Stockholders' Representative.
All communications or writings to be sent to the Stockholders pursuant to this
Agreement may be addressed to the Stockholders' Representative and any
communication or writing so sent shall be deemed notice to all of the
Stockholders hereunder.
(b) The Stockholders' Representative has been appointed and constitutes
the true and lawful attorney-in-fact of each Stockholder, with full power in
his/her/its name and on his/her/its behalf to act according to the terms of this
Agreement in the absolute discretion of the Stockholders' Representative, and in
general to do all things and to perform all acts including, without limitation,
executing and delivering all agreements, certificates, receipts, instructions
and other instruments contemplated by or deemed advisable in connection with
this Agreement.
(c) Notwithstanding the foregoing, the Stockholders' Representative
shall inform each Stockholder of all notices received, and of all actions,
decisions, notices and exercises of any rights, power or authority proposed to
be done, given or taken by such Stockholders' Representative, and shall act as
directed by the Stockholders holding a majority interest in the Escrow Property.
3. Transfers of Escrow Property.
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(a) O2DIESEL may, by giving written notice (an "Indemnity Notice") to
the Stockholders' Representative and the Escrow Agent, make a claim against the
Escrow Property for any amounts claimed by it under Section 6.1 of the Support
Agreement, at any time during the period for indemnification provided for in the
Support Agreement (each such claim an "INDEMNIFICATION CLAIM"). Such Indemnity
Notice shall contain such facts and information as are then reasonably available
and the specific basis for the Indemnification Claim.
(b) In the event that the Stockholders' Representative shall give
written notice to O2DIESEL and the Escrow Agent that it objects on behalf of the
Stockholders to a transfer of Escrow Property in respect of said claim(s) within
seven (7) days following the date on which it receives the Indemnity Notice
regarding such claim(s), then O2DIESEL and the Stockholders' Representative
shall endeavor to settle and compromise the claims subject to the Indemnity
Notice. If O2DIESEL and the Stockholders' Representative are unable to agree on
any settlement or compromise, then the Escrow Agent shall not make any transfers
of the Escrow Property except upon receipt of a written statement executed by
O2DIESEL and the Stockholders' Representative evidencing their agreement to the
amounts and directions in question or by reason of any non-appealable order or
decree of a court of competent jurisdiction. The Escrow Agent shall take the
action specified in notices signed by, and received from,
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O2DIESEL and the Stockholders' Representative as soon as practical after its
receipt thereof.
(c) In the event that the Stockholders' Representative fails to give
written notice to O2DIESEL and the Escrow Agent that it objects on behalf of the
Stockholders to a transfer of Escrow Property in respect of said claim(s) within
seven (7) days following the date on which the Stockholders' Representative
receives the Indemnity Notice regarding such claim(s), at the end of such period
the Escrow Agent shall promptly transfer to O2DIESEL as directed by such
Indemnity Notice from the Escrow Property (to the extent that the Escrow
Property is sufficient therefor) an amount that has an aggregate value equal to
the final amount of the claim. During the General Escrow Period, each amount so
transferred shall be drawn from each Stockholder from the General Escrowed
Shares on a pro rata basis (based upon such Stockholder's proportionate share of
the General Escrowed Shares), rounded up to the nearest whole share. During the
Additional Escrow Period, each amount so transferred shall be drawn from each
Major Shareholder from the Major Shareholder Escrowed Shares on a pro rata basis
(based upon such Stockholder's proportionate share of the Major Shareholder
Escrowed Shares), rounded up to the nearest whole share.
(d) The General Escrowed Shares shall be transferred to the
Stockholders in accordance with their respective interests within thirty (30)
days following the expiration of the General Escrow Period if (i) all Escrow
Property has not previously been transferred to O2DIESEL in accordance with
Section 3(b) hereof with respect to each Indemnity Notice which has been given
by O2DIESEL as of the expiration of the General Escrow Period or (ii) no
Indemnity Notice has been given by O2DIESEL as of the expiration of the General
Escrow Period; provided however, that the General Escrowed Shares deposited into
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Escrow for the benefit of any Major Shareholder shall remain in Escrow as Major
Shareholder Escrowed Shares for the duration of the Additional Escrow Period.
The Major Shareholder Escrowed Shares shall be transferred to the Major
Shareholders in accordance with their respective interests within thirty (30)
days following the expiration of the Additional Escrow Period if (i) all Escrow
Property has not previously been transferred to O2DIESEL in accordance with
Section 3(b) hereof with respect to each Indemnity Notice which has been given
by O2DIESEL as of the expiration of the Additional Escrow Period or (ii) no
Indemnity Notice has been given by O2DIESEL as of the expiration of the
Additional Escrow Period. If O2DIESEL has made any claim against the Escrow
Property to which the Stockholders' Representative has timely objected and which
remains outstanding as of the expiration of the General Escrow Period or the
Additional Escrow Period, as applicable, no Escrow Property shall be transferred
to the Stockholders or the Major Shareholders, as applicable, until such time as
any such claim has been resolved in accordance with the provisions of this
Section 3; provided, however, that if the amount of the claim is not disputed by
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the Stockholders' Representative, and if such amount is less than the balance
then remaining of the Escrow Property, then the balance of the Escrow Property
not subject to such claim shall be transferred as provided in the first sentence
of this Section 3(e).
(e) Notwithstanding the other provisions of this Section 3, the Escrow
Agent shall release and distribute the Escrow Property to the Indemnification
Parties pursuant to
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any written instructions executed by all of the Indemnification Parties or by
reason of any non-appealable order or decree by a court of competent
jurisdiction.
4. Income and Investments.
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(a) Treatment of Earnings. All income earned on the Escrow Property,
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after payment of expenses incurred or taxes incurred in connection therewith
(the "INVESTMENT PROCEEDS"), shall be deemed to be a part of the Escrow Property
for any and all purposes hereunder. The Investment Proceeds shall be allocated
for income tax purposes to the parties hereto on the basis of actual
distribution of the Escrow Property. Subject to the reasonable discretion of
the Escrow Agent, the Escrow Agent shall provide the Stockholders'
Representative with a quarterly accounting of earnings and an annual statement
in accordance with the respective interests of the Stockholders and/or the Major
Shareholders.
(b) Permissible Investments. The Escrow Agent shall invest any cash
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funds constituting the Escrow Property at the written direction of O2DIESEL and
the Stockholders' Representative in United States Treasury obligations or in one
or more mutual funds invested solely in United States Treasury obligations.
5. Dividends: Voting; Dispositive Authority.
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(a) Dividends. Any dividends declared and paid, and any distributions
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made with respect to, the General Escrow Shares and the Major Escrow Shares
shall be delivered to the Escrow Agent and shall be held and transferred by the
Escrow Agent in the same manner that the Escrow Shares are held and transferred
hereunder. All such dividends and distributions made in shares of the common
stock of O2DIESEL shall be deemed to be General Escrow Shares and the Major
Escrow Shares, as applicable, for any and all purposes hereunder.
(b) Voting. The Stockholders shall be entitled to vote the General
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Escrow Shares and the Major Escrow Shares, as applicable, held by the Escrow
Agent as their nominee in accordance with their respective interests therein on
all matters submitted to a vote of the stockholders of O2DIESEL during the term
of this Agreement but shall not be entitled to exercise any investment or
dispositive powers over the Escrow Shares.
(c) Dispositive Authority. Each Stockholder shall retain dispositive
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authority with respect to the General Escrow Shares and the Major Escrow Shares,
as applicable, provided that such disposition shall be on bona fide arms-length
terms, in compliance with applicable law and in compliance with the terms of the
Share Exchange Offer, and any proceeds of disposition shall be delivered to and
retained by the Escrow Agent as Escrow Property; and provided further, that
without the prior written consent of O2DIESEL, such Escrow Shares may not be
sold at a net price per share less than $1.50. The Stockholders and O2DIESEL
shall cooperate reasonably to take such action as is reasonably necessary to
permit and facilitate any such sale and delivery of proceeds. In connection
therewith, the Escrow Agent shall only be required to act upon joint
instructions signed by the applicable Stockholder(s) and O2DIESEL.
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6. Fees of Escrow Agent.
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(a) Ordinary Escrow Service Fees. It is understood that fees and usual
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charges in the amount of $___________________ are agreed upon for services of
Escrow Agent and shall be considered compensation for ordinary services as
contemplated by this Agreement. The reasonable fees of and the reasonable
expenses incurred by the Escrow Agent in connection with carrying out its
ordinary escrow services as contemplated hereunder shall be paid by O2DIESEL.
(b) Extraordinary Service Fees. In the event that the conditions of
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this Agreement are not promptly fulfilled, or if Escrow Agent renders any
service not provided for in this Agreement at the joint request of O2DIESEL and
Stockholders' Representative, or if the Indemnification Parties request a
substantial modification of its terms, or if any controversy arises, or if
Escrow Agent is made a party to, or intervenes in, any litigation pertaining to
this escrow or its subject matter (each case, an "EXTRAORDINARY SERVICE"),
Escrow Agent shall be reasonably compensated for such Extraordinary Services and
reimbursed for all costs, reasonable attorney's fees, including allocated costs
of in-house counsel, and expenses occasioned by such default, delay, controversy
or litigation, and Escrow Agent shall have the right to retain all documents
and/or other things of value at any time held by Escrow Agent in this escrow
until such compensation, fees, costs, and expenses are paid. The
Indemnification Parties jointly and severally promise to pay these sums in
connection with Extraordinary Services upon demand, which sums shall be borne
equally by O2DIESEL and the Stockholders (as a group).
7. Rights and Duties of the Escrow Agent.
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(a) The Escrow Agent shall have no implied duties and no obligation to
take any action hereunder except for any action specifically provided by this
Agreement to be taken by the Escrow Agent. The Escrow Agent shall have no
responsibility or obligation of any kind in connection with this Agreement or
the Escrow Property, and shall not be required to deliver the same or any part
thereof or take any action with respect to any matters that might arise in
connection therewith, other than to receive, hold, and make delivery of the
Escrow Property as herein provided or by reason of any non-appealable order of a
court of competent jurisdiction. The Escrow Agent shall not be liable to any
party for any action taken or omitted to be taken hereunder or in connection
herewith except for its own gross negligence or willful misconduct or breach of
the specific provisions of this Agreement. The Escrow Agent may execute any of
its duties hereunder by or through employees, agents and attorneys-in-fact.
(b) O2DIESEL and the Stockholders hereby agree to jointly and severally
indemnify, hold harmless and defend the Escrow Agent and its directors,
officers, agents and employees (collectively, the "Indemnitees") from and
against any and all claims, liabilities, losses, damages, fines, penalties and
expenses, including out-of-pocket and incidental expenses and legal fees and
expenses ("Losses"), that may be imposed on, incurred by or asserted against,
the Indemnitees or any of them for following any instructions or other
directions upon which they are authorized to rely pursuant to the
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terms of this Agreement. In addition to and not in limitation of the immediately
preceding sentence, O2DIESEL and the Stockholders also agree to indemnify and
hold the Indemnitees and each of them harmless from and against any and all
Losses that may be imposed on, incurred by or asserted against the Indemnitees
or any of them in connection with or arising out of the Escrow Agent's
performance under this Agreement, provided the Indemnitees have not acted with
gross negligence or engaged in willful misconduct. The provisions of this
Section 7(b) shall survive the termination of this Agreement and the resignation
or removal of the Escrow Agent for any reason.
(c) The Escrow Agent shall have the right to resign after first having
given the Indemnification Parties notice in writing of its intent to resign at
least thirty (30) days in advance. At the expiration of such thirty (30) days,
the Escrow Agent shall deliver the remaining Escrow Property to a successor
Escrow Agent designated in writing by all of the Indemnification Parties. If the
Indemnification Parties fail to designate a successor to the Escrow Agent within
such time, the Escrow Agent shall, at the expense of the Indemnification
Parties, institute a xxxx of interpleader as contemplated by Section 7(e)(ii)
hereof. Any corporation or association into which the Escrow Agent in its
individual capacity may be merged or converted or with which it may be
consolidated, or any corporation or association resulting from any merger,
conversion or consolidation to which the Escrow Agent in its individual capacity
shall be a party, or any corporation or association to which all or
substantially all the corporate trust business of the Escrow Agent in its
individual capacity may be sold or otherwise transferred, shall be the Escrow
Agent under this Agreement without further act.
(d) The Escrow Agent shall be entitled to rely upon the accuracy, act
in reliance upon the contents and assume the genuineness of any notice which is
given to the Escrow Agent in proper form pursuant to this Agreement and
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper person, without the necessity of the Escrow Agent verifying
the truth or accuracy thereof. The Escrow Agent shall not be obligated to
investigate or in any way determine whether O2DIESEL is entitled to
indemnification under the Support Agreement or the proper amount of any such
indemnification.
(e) Should any controversy arise between or among the Indemnification
Parties or any other person, firm or entity with respect to this Agreement, the
Escrow Property or any part thereof, or the right of any party or other person
to receive the Escrow Property, or should the Indemnification Parties fail to
designate another Escrow Agent as provided in Section 7(c) hereof, or if the
Escrow Agent should be in doubt as to what action to take, the Escrow Agent
shall have the right (but not the obligation) to (i) withhold delivery of the
Escrow Property until the controversy is resolved and/or (ii) institute a xxxx
of interpleader in any court of competent jurisdiction to determine the rights
of the parties hereto (the right of the Escrow Agent to institute such xxxx of
interpleader shall not, however, be deemed to modify the manner in which Escrow
Agent is entitled to make transfers from the Escrow Property as hereinabove set
forth other than to tender the Escrow Property into the possession and control
of such court).
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8. Term. This Agreement shall continue in full force and effect until all
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Escrow Property has been transferred in accordance with Section 3 hereof.
9. Miscellaneous.
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(a) Time Periods. For purposes of computing time periods hereunder,
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all references to "days" shall mean regular business days of the Escrow Agent.
Whenever under the terms hereof the time for giving a notice or performing an
act falls upon a Saturday, Sunday or bank holiday, such time shall be extended
to the Escrow Agent's next business day.
(b) Legal Counsel. The Escrow Agent may consult with its counsel or
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other counsel satisfactory to it with respect to any question relating to its
duties or responsibilities hereunder or otherwise in connection herewith and
shall not be liable for any reasonable action taken, suffered or omitted by the
Escrow Agent in good faith upon the advice of such counsel.
(c) Severability. If one or more of the provisions contained herein
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shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof, and this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
(d) Survival of Indemnification. Notwithstanding termination of this
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Agreement, the provisions of Sections 7(a) and 9(b) shall remain in full force
and effect for so long as the Escrow Agent may have any liability.
(e) Default. Waiver of any default shall not constitute waiver of any
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other or subsequent default.
(f) Notices. All notices and other communications hereunder shall be
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in writing (including wire, telefax or similar writing) and shall be delivered,
addressed or telefaxed as follows:
If to O2DIESEL:
O2Diesel Corporation
1650 - 0000 Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
Attention: Xxxx Xxxxxxx, President
Fax: (000) 000-0000
With a required copy to:
Blake, Xxxxxxx & Xxxxxxx LLP
Suite 2600, Three Bentall Centre
Xxx 00000
0
Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
Attention: Xxxxx Xxxxxxx
Fax: (000) 000-0000
If to the Stockholders' Representative:
Xx. Xxxxxx Xxxxxxx
XxXxxxx Xxxxxxx
The Arch
7 Father Xxxxxxx Xxxx
Xxxx, XX0 000 Xxxxxxx
Fax: x000 00 000 0000
If to the Escrow Agent:
Comerica Bank
000 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Fax: 000-000-0000
Each such notice, request or other communication shall be given by hand
delivery, by nationally recognized courier service or by telefax, receipt
confirmed. Each such notice, request or communication shall be effective (i) if
delivered by hand or by nationally recognized courier service, when delivered at
the address specified in this Section 9(f) (or in accordance with the latest
unrevoked written direction from such party); (ii) if given by telefax, when
such telefax is transmitted to the telefax number specified in this Section 9(f)
(or in accordance with the latest unrevoked written direction from such party),
and the appropriate confirmation is received.
(g) Counterparts. This Agreement may be executed in one or more
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counterparts, all of which shall be deemed one and the same agreement.
(h) Amendment. This Agreement may not be amended or modified except by
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a written agreement signed by each of the parties hereto.
(i) Governing Law. This Agreement shall be construed, enforced, and
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administered in accordance with the laws of the State of New York, without
giving effect to any provision thereof that would compel the application of the
substantive laws of any other jurisdiction.
(j) Defined Terms. All defined terms used herein shall have the
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meanings herein defined or, if not defined herein, shall have the meanings
ascribed to such terms in the Support Agreement.
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(k) Entire Agreement. This Agreement, the Support Agreement, the Share
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Exchange Offer and the related Form of Acceptance and Authority constitute the
entire agreement and understanding among O2DIESEL, the Company, the
Stockholders, the Stockholders' Representative and the Escrow Agent and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement.
* * *
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IN WITNESS WHEREOF, this Indemnity Escrow Agreement has been executed by
the parties as of the date first above written.
O2DIESEL CORPORATION
By: /s/ Xxxx Xxxxxxx
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Name: Xxxx Xxxxxxx
Title: President
MAJOR SHAREHOLDERS:
/s/ Xxxxxxx Xxxx-Xxxxx
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Name: Xxxxxxx Xxxx-Xxxxx
Quarryside Ltd.
By: /s/ Xxxxx X. Xxxxx
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Xxxxx X. Xxxxx
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Attorney-in-fact
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Name: Quarryside Ltd.
STOCKHOLDERS' REPRESENTATIVE:
/s/ Illegible
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Illegible
Pursuant to a power of attorney contained in
written acceptances to a recommended offer
dated 18 June 2003
ESCROW AGENT:
By:_________________________________________
Name:_______________________________________
Title:______________________________________
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(Signature Page to Escrow Agent)
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Schedule A
MAJOR SHAREHOLDERS
NAME MAJOR SHAREHOLDER ESCROWED SHARES
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Xxxxxxx Xxxx-Xxxxx
Quarryside Ltd.
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