Document:

exv10w11

Exhibit 10.11

Form of Escrow Agreement

GENERAL ESCROW AGREEMENT

     This General Escrow Agreement (this “General Escrow Agreement”) is made and entered into as of
[•], 2008 (the “Effective Date”), by and among The Bank of New York Mellon Trust Company, N.A. (the
“Escrow Agent”) as escrow agent of the Escrowed Property (as defined below), Flow International
Corporation, a Washington corporation (“Parent”), and John B. Cheung, Inc. as the representative of
the holders of Company Shares of OMAX Corporation (the “Shareholders’ Representative”).

Recitals

     A. Parent, Orange Acquisition Corporation, a Washington corporation wholly-owned by Parent
(“Sub”), OMAX Corporation, a Washington corporation (“Company”), and the Shareholders’
Representative have entered into an Agreement and Plan of Merger dated as of [ ], 2008 (the
“Merger Agreement”), setting forth certain terms and conditions under which Sub will merge with and
into Company, with Company surviving as a wholly-owned subsidiary of Parent. Capitalized terms
used but not defined herein will have the meanings ascribed thereto in the Merger Agreement.
Notwithstanding the foregoing, the use of such defined terms incorporated by reference to the
Merger Agreement is solely for the convenience of the Parent and the Shareholders’ Representative,
and it is understood that the Escrow Agent is not a party to and has neither read nor received, nor
does the Escrow Agent consent to, any provisions in the Merger Agreement. The parties agree that
the Escrow Agent shall not be responsible for, or incur any liability in connection with,
compliance with any provisions of the Merger Agreement, or any agreement to which Escrow Agent is
not a party. The Escrow Agent may rely on the use of such defined terms in any communication it
receives.

     B. The Merger Agreement provides that a portion of the Consideration composed of cash, a
promissory note and shares of Parent Common Stock otherwise payable to holders of Company Shares
under Section 2.1.3 and 2.1.4 of the Merger Agreement will be deposited by Parent with, and held in
escrow by, the Escrow Agent under this General Escrow Agreement in order to secure certain claims
by Parent for indemnification under Article VIII of the Merger Agreement, on the terms and
conditions included therein and herein.

     NOW THEREFORE, for and in consideration of the premises and mutual covenants and agreements
contained in this General Escrow Agreement, the parties agree as follows:

Article 1

Establishment of General Escrow Accounts.

     1.1 Deposit of Funds.

                    (a) General Escrow Amount. On the Effective Date, the Escrow Agent is hereby authorized to
establish an escrow account and Parent will deposit into such account an amount with the Escrow
Agent that the Parent and the Shareholders’ Representative agree have a value of $[9,450,000] of
the Consideration otherwise payable to holders of Company Shares under Section 2.1.3 and 2.1.4 of
the Merger Agreement, composed of (i) a promissory note of the Parent payable to the order of the
Shareholders’ Representative substantially in the form of Exhibit I hereto, dated the Effective
Date, in the principal amount of $                     (such promissory note, and any promissory note executed
and

 

 

delivered pursuant to Section 2.3.1 hereof, is herein called the “Note”), (ii) [$•] (the
“Funds”) and (iii) [•] shares of Parent Common Stock (the “Common Stock”) (such amount which at any
particular time is then held in escrow under this General Escrow Agreement, as increased by any
dividends, earnings, income, or interest earned on such amount pursuant to the terms hereof and as
reduced in accordance with the procedures specified in this General Escrow Agreement, the “General
Escrow Amount”). The General Escrow Amount will be held by the Escrow Agent as an escrow fund (a)
for the purpose of securing certain claims by Parent for indemnification under Article VIII of the
Merger Agreement, (b) for satisfying any award of reasonable attorneys’ fees and charges and costs
of arbitration in favor of Parent or the Shareholders’ Representative under Section 2.3 or Article
3 hereof (a “Prevailing Party Award”), (c) for funding payments related to Net Working Capital to
the extent required by Section 2.3 of the Merger Agreement, and (d) for reimbursement of the
Shareholders’ Representative’s fees and expenses in connection with the performance of its duties
under the Merger Agreement and this General Escrow Agreement, as set forth in Section 5.3 of this
General Escrow Agreement. The percentage of the General Escrow Amount (and the interest thereon)
to which each holder of Company Shares is entitled is included on Schedule A. The Escrow
Agent will have no duty or obligation to verify or confirm the accuracy, validity, or sufficiency
of any of the percentages included on Schedule A attached hereto.

                    (b) Additional Funds. Parent or the Shareholders’ Representative may deposit with the Escrow
Agent, at any time and from time to time following the Effective Date, amounts beyond the General
Escrow Amount (“Additional Funds” and together with the General Escrow Amount, the “Escrowed
Property”). Such Additional Funds are to be held by the Escrow Agent as an escrow fund, to be
safeguarded, held and invested on the same terms as the General Escrow Amount in accordance with
the provisions of Article 1 hereof, and are to be disbursed on the Release Date to the holders of
Company Shares in the same percentages as indicated on Schedule A. The Additional Funds
are not to be used for any other purpose hereunder, including without limitation the securing of
indemnification claims, reimbursement of fees and expenses, or the funding of payments relating to
Net Working Capital.

     1.2 No Encumbrance. No portion of the Escrowed Property or any beneficial interest
therein may be pledged, sold, assigned, or transferred, including by operation of law, by the
Shareholders’ Representative, Parent, or any holder of Company Shares, nor may it be taken or
reached by any legal or equitable process in satisfaction of any debt or other liability of
Company, Parent, or any holder of Company Shares, before the delivery of such Escrowed Property by
the Escrow Agent to Parent or the holders of Company Shares under this General Escrow Agreement,
provided that the beneficial interest in the Escrowed Property of a holder of Company Shares may be
transferred, in whole or in part, by will or the laws of intestacy.

     1.3 Power to Transfer General Escrow. The Escrow Agent is hereby granted the power to
effect any transfer of the Escrowed Property as expressly provided for in this General Escrow
Agreement.

     1.4 General Escrow Account. The Escrow Agent hereby agrees to hold, invest, and
disburse the Escrowed Property in such account (the “General Escrow Account”) as expressly provided
in this General Escrow Agreement. The Escrow Agent will hold and safeguard the Escrowed Property
in the General Escrow Account during the term of this General Escrow Agreement, will treat the
Escrowed Property in accordance with the terms of this General Escrow Agreement and not as the
property of Parent or the Shareholders’ Representative, and will hold and dispose of the Escrowed
Property only in accordance with the express (and not implied) terms of this General Escrow
Agreement. As security for the due and punctual performance of any and all of the obligations of
the Parent and the Shareholders’ Representative to the Escrow Agent hereunder, now or hereafter
arising, the Parent and the Shareholders’ Representative, jointly and severally, on behalf of
themselves and the holders of Company Shares, hereby pledge, assign and grant to the Escrow Agent a
continuing security interest in, and a general lien on, the

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Escrowed Property, the General Escrow Account and all distributions thereon or additions
thereto (whether such additions are the result of deposits by the Parent or the Shareholders’
Representative or the investment of the Escrowed Property). The security interest and lien of the
Escrow Agent shall at all times be first priority and valid, perfected and enforceable by Escrow
Agent against the Parent and the Shareholders’ Representative and all third parties in accordance
with the terms of this General Escrow Agreement. Notwithstanding the above-referenced security
interest and lien, the Escrow Agent shall follow the procedures set forth in Article 9 prior to
exercising its rights under this paragraph.

     The Escrow Agent hereby acknowledges receipt from the Parent of the Note. Upon receipt from
the transfer agent for the Common Stock, the Escrow Agent will acknowledge confirmation that
                     shares of Common Stock have been registered in the name of the Escrow Agent. Any stock or
securities issued with respect to the Common Stock as a result of a stock split, stock dividend,
reclassification, merger, business combination or other event shall without any further act be
deemed to be part of the General Escrow Amount and shall be registered in the name of the Escrow
Agent or its nominee. Any dividends, distributions, interest, income or earnings on any of the
Common Stock payable in cash or the Note shall be delivered to the Escrow Agent and held as part of
the General Escrow Amount.

     The Escrow Agent shall have no duty, responsibility or obligation (a) to forward to any person
or entity any notice, solicitation, tender or exchange offer or other document, information or
communication, written or unwritten, received with respect to the Common Stock or the Note
including without limitation proxy materials, or (b) with respect to the preservation or protection
of, or the exercise or enforcement of any rights or remedies under or with respect to, the Common
Stock or the Note, including without limitation the exercise of any voting or consent rights,
conversion or exchange rights, defense of title or otherwise. Notwithstanding the foregoing, upon
Shareholders’ Representative’s reasonable written request, the Escrow Agent shall or shall cause
its nominee to execute and deliver to Shareholders’ Representative a proxy or other instrument in
the form supplied to it by and directed by the Shareholders’ Representative for voting or
exercising any other consent rights with respect to the Common Stock or the Note.

     Notwithstanding anything herein to the contrary, the Shareholders’ Representative shall not
demand payment of the Note except as expressly provided in Section 3.2 hereof.

     The parties shall execute and deliver such documents and instructions and shall do such other
acts and things as is reasonably required to effectuate the purposes of this Section 1.4.

     1.5 Investment of General Escrow. The Escrow Agent is hereby authorized and directed
to hold the Escrowed Property in the General Escrow Account and will invest the Funds and any
Additional Amounts in one or more short-term money market instruments, as directed in writing by
the Parent. In the absence of written investment direction, the Escrow Agent shall hold the Funds
and any Additional Amounts received hereunder uninvested. The Escrow Agent will not invest any
funds or cash held hereunder other than in accordance with this Section 1.5. The Escrow Agent will
have no liability or responsibility for investment losses, including without limitation any market
loss on any investment liquidated (whether at or prior to maturity). The Escrow Agent does not
have any interest in the Escrowed Property, but is only serving as Escrow Agent under this General
Escrow Agreement. For all purposes of this General Escrow Agreement, the Escrowed Property will
include any dividends, distributions, interest, earnings, or income on the Escrowed Property. The
dividends, interest, earnings or income on the Escrowed Property shall be posted to the General
Escrow Account on a monthly basis. Within thirty (30) days after the execution of this General
Escrow Agreement and in any event prior to any disbursement of a portion of the Escrowed Property,
Shareholders’ Representative shall deliver to the Escrow Agent a “loader file” in a form
satisfactory to the Escrow Agent containing the names, addresses, tax identification numbers and
wire instructions (if applicable) for each holder of Company Shares. Prior

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to any disbursement of a portion of the Escrowed Property to a holder of Company Shares, such
holder of Company Shares will deliver to the Escrow Agent a completed IRS Form W-9 or W-8BEN. The
Escrow Agent may, in making or disposing of any investment permitted by this General Escrow
Agreement, deal with itself, in its individual capacity, or any of its affiliates, whether or not
it or such affiliate is acting as a subagent of the Escrow Agent or for any third person or dealing
as principal for its own account. Parent and the Shareholders’ Representative understand that, in
the event the tax identification numbers provided are not certified to the Escrow Agent, the
Internal Revenue Code of 1986, as amended (the “Code”), may require the Escrow Agent to withhold a
portion of any distribution of the Escrowed Property, as applicable. Parent and the Shareholders’
Representative intend that the Escrowed Property will be treated as an installment obligation for
purposes of Section 453 of the Code, and neither Parent nor the Shareholders’ Representative will
take any action or filing position inconsistent with such characterization except as otherwise
required by a final and non-appealable decision or other order by any court of competent
jurisdiction or by a final closing agreement or accepted offer in compromise under Section 7121 or
7122 of the Code. Parent and the Shareholders’ Representative agree and acknowledge that for U.S.
federal income tax purposes, (i) Parent will be the owner of the Escrowed Property, and all
dividends, interest, earnings or income, if any, earned with respect to the Escrowed Property while
held by the Escrow Agent will be treated as earned by Parent, and (ii) upon any release of the
Escrowed Property to the holders of Company Shares in accordance with this General Escrow
Agreement, a portion of the released amount will be treated for U.S. federal income tax purposes as
a payment of interest to the holders of Company Shares, and Parent will be permitted a
corresponding interest deduction in accordance with the Code and the Treasury Regulations
promulgated thereunder. Unless otherwise specified by Parent, all tax reporting will be performed
by the Escrow Agent on a Form 1099-MISC.

     1.6 Reports. The Escrow Agent will provide to the Shareholders’ Representative and
Parent a monthly statement concerning the Escrowed Property in accordance with its normal practices
and procedures. The Parent and the Shareholders’ Representative acknowledge that if the balance of
the General Escrow Account is zero for any particular month, the Escrow Agent will be under no
obligation to provide to the Shareholders’ Representative and Parent a monthly statement concerning
the Escrowed Property.

Article 2

Resolution of Claims; Adjustments.

     2.1 Indemnification Obligations. Except as provided in Article VIII of the Merger
Agreement, the General Escrow Amount will serve as a source of funding to secure certain
indemnification claims by Parent and the Surviving Corporation under Article VIII of the Merger
Agreement. For the purposes of this General Escrow Agreement, indemnification obligations will
continue in accordance with and subject to Article VIII of the Merger Agreement. Payment of any
amount determined as provided below for which Parent is entitled to be indemnified from the General
Escrow Amount under Article VIII of the Merger Agreement (“Damages”), any Prevailing Party Awards,
or any payment of the fees and expenses of the Shareholders’ Representative under Section 5.3 will
be made by the release of a portion, if not all, of the General Escrow Amount to Parent or the
Shareholders’ Representative, as applicable.

     2.2 Notice of Claims. Promptly after the receipt by Parent of notice or discovery of
any claim, damage, or legal action or proceeding or other amount that Parent believes gives rise to
indemnification rights capable of being claimed from the General Escrow Amount under Article VIII
of the Merger Agreement (a “Claim”), Parent will give the Shareholders’ Representative written
notice of such Claim and will promptly provide a copy of such notice to the Escrow Agent. Each
notice of a Claim by Parent (each, a “Notice of Claim”) will be in writing and will state that
Parent believes in good faith

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that it is entitled to indemnification under Article VIII of the Merger Agreement, and will
include the estimated amount of Damages being claimed from the General Escrow Amount (including an
amount reasonably estimated by Parent for Parent’s Indemnification Expenses (as defined below), and
a reasonable estimate that assumes Parent will receive a Prevailing Party Award if a Claim is
subject to arbitration) and a summary of known, relevant facts with respect to such Claim and must
be delivered on or before that date which is 180 days from the Closing under the Merger Agreement,
as to which date Parent shall notify the Escrow Agent not less than ten (10) business days prior
thereto (the “Release Date”); provided, however, that any estimated Damages included in a Notice of
Claim will be updated to reflect final computations relating to, or final resolution of, such Claim
before any release of such amounts from the General Escrow Amount. For purposes of this General
Escrow Agreement, “Parent’s Indemnification Expenses” will include attorneys’ fees and other
out-of-pocket expenses of Parent to which it is entitled to indemnification under Article VIII of
the Merger Agreement.

     2.3 Resolution of Claims. Any Notice of Claim received by the Shareholders’
Representative and the Escrow Agent in accordance with Section 2.2 above will be resolved as
follows:

          2.3.1 Uncontested Claims. In the event that either (i) the Shareholders’
Representative acknowledges in a written notice delivered to Parent and the Escrow Agent that it
will not contest the Claim for which a Notice of Claim is provided (an “Acknowledgement of
Uncontested Claim”) or (ii) the Shareholders’ Representative does not contest a Notice of Claim in
writing within 30 calendar days of receipt (the “Notice Period”), as provided below in
Section 2.3.2 (an “Uncontested Claim”), Parent may deliver to the Escrow Agent, with a copy to the
Shareholders’ Representative, a written demand by Parent (a “Parent Demand”) stating that either
Parent has received an Acknowledgement of Uncontested Claim or that Parent delivered a Notice of
Claim to the Shareholders’ Representative as required in this General Escrow Agreement and that
Parent did not receive a notice of contest from the Shareholders’ Representative during the Notice
Period. If any portion of the Damages as set forth in a Notice of Claim were estimated or subject
to further computation or a final resolution, Parent will update its Notice of Claim setting forth
the final amount of Damages to be included in the Notice of Claim and deliver such updated Notice
of Claim with the Parent Demand. The original estimated Damages or the updated Damages, as
applicable, will be released to Parent from the General Escrow Amount in accordance with this
Section 2.3.1. It is provided, however, that within 30 calendar days after receipt of the Parent
Demand or an updated Notice of Claim, the Shareholders’ Representative may object in a writing
delivered to Parent and the Escrow Agent to the computations or other administrative matters
relating to the portion of the General Escrow Amount to be released to Parent (but may not object
to the validity or amount of the Claim previously disclosed in the Notice of Claim), whereupon the
Escrow Agent will not release any portion of the General Escrow Amount to Parent until either:
(i) Parent and the Shareholders’ Representative have given the Escrow Agent joint written notice
setting forth an agreed portion to which Parent is entitled or (ii) the matter is resolved in
accordance with Sections 2.3.2 and 2.3.3 below. Upon the resolution or other agreement between
Parent and the Shareholders’ Representative of an Uncontested Claim as provided herein, the Escrow
Agent will promptly take all steps to release the appropriate portion of the General Escrow Amount
to Parent. Notwithstanding anything herein to the contrary and for the avoidance of doubt, the
parties to this General Escrow Agreement hereby acknowledge and agree that (a) any amounts payable
to the Parent pursuant to this General Escrow Agreement shall first be paid by decreasing the then
outstanding principal amount of the Note by the amount so payable to the Parent until the
outstanding principal amount is zero and (b) upon any such decrease, the Parent shall execute and
deliver to the Escrow Agent an amended and restated promissory note that is identical to the Note
except that the amended and restated promissory note shall be in the principal amount that reflects
such decrease, whereupon the Escrow Agent shall mark the previously outstanding Note as cancelled
and such amended and restated promissory note shall be deemed to be the “Note” for all purposes of
this General Escrow Agreement.

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          2.3.2 Contested Claims.

                    (a) In the event that the Shareholders’ Representative gives written notice to Parent and the
Escrow Agent contesting all or a portion of a Notice of Claim or a Parent Demand (a “Contested
Claim”) within 30 calendar days of receipt of such Notice of Claim or Parent Demand, as applicable,
the Shareholders’ Representative and Parent will use their respective good faith efforts to resolve
such dispute, provided that if such dispute is not resolved in 20 calendar days, then the Contested
Claim will be settled in accordance with Section 2.3.3 below. Any portion of a Notice of Claim or
Parent Demand that is not contested or is subsequently settled will be resolved as provided in
Section 2.3.1. If notice of a Contested Claim is received by the Escrow Agent, then the Escrow
Agent will continue to hold in the General Escrow Account a portion of the General Escrow Amount
(the “Contested Amount”) equal to the amount that is specified in the Contested Claim assuming that
the claim is resolved in favor of Parent. The Contested Amount will not be released on the Release
Date, or as otherwise provided for in Section 3.1, and will be retained by the Escrow Agent until
such time as one of the conditions included in Section 2.3.2(b) is satisfied.

                    (b) The Contested Amount will be held until the earlier of: (i) receipt by the Escrow Agent
of a settlement agreement executed by Parent and the Shareholders’ Representative setting forth a
resolution of the Contested Claim and the portion of the General Escrow Amount, if any, to be
delivered to Parent; (ii) receipt by the Escrow Agent of a written notice from Parent (a “Parent
Distribution Notice”) attaching a copy of the arbitrator’s final award, decision, or supplementary
report or finding made in accordance with Section 2.3.3 (the “Arbitrator’s Award”), and setting
forth the portion of the General Escrow Amount to be delivered to Parent (Parent will at the same
time provide a copy of the Parent Distribution Notice to the Shareholders’ Representative); or
(iii) receipt by the Escrow Agent of a written notice from the Shareholders’ Representative (the
“Representative’s Distribution Notice”) attaching a copy of the Arbitrator’s Award that no portion
of the General Escrow Amount is to be delivered to Parent as a result of such award (the
Shareholders’ Representative will at the same time provide a copy of the Representative’s
Distribution Notice to Parent). If the earliest to occur of the three events described in the
preceding sentence is (i) or (ii), the Escrow Agent will, within 20 calendar days of receipt of the
settlement agreement or Parent Distribution Notice, as applicable, release to Parent the portion of
the General Escrow Amount, if any, to be released to Parent as identified in such settlement
agreement or the Arbitrator’s Award to which the Parent Distribution Notice relates.

                    (c) If the Arbitrator’s Award concludes that a portion of the General Escrow Amount is to be
released to Parent either in satisfaction of Damages or as Prevailing Party Awards, the arbitrator
will specify in the Arbitrator’s Award the amount of such Damages and Prevailing Party Award (if
any) and the corresponding amount of the General Escrow Amount to be released to Parent. In the
event that the Escrow Agent institutes an action for interpleader in accordance with Section 4.6 of
this General Escrow Agreement as a result of a dispute between Parent and the Shareholders’
Representative, Parent and the Shareholders’ Representative agree to jointly seek to stay the
interpleader action pending the resolution of any arbitration commenced by Parent or the
Shareholders’ Representative.

          2.3.3 Arbitration.

                    2.3.3.1 CPR Rules. Any Contested Claim and any other dispute between Parent and the
Shareholders’ Representative under this General Escrow Agreement will be submitted to final and
binding arbitration in Seattle, Washington which arbitration will, except as specifically stated
in this General Escrow Agreement, be conducted in accordance with the CPR Comprehensive or
Streamlined Arbitration Rules and Procedures then in effect (the “CPR Rules”) depending on the
amount in controversy; provided, however, that such parties agree first to try in good faith to
resolve any Contested Claim that does not exceed $100,000 by mediation with CPR before resorting to
arbitration;

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provided, further, that, in the event of an arbitration, the arbitration provisions of this
General Escrow Agreement will govern over any conflicting rules that may now or hereafter be
contained in the CPR Rules.

                    2.3.3.2 Binding Effect. The final decision of the arbitrator will be a reasoned
opinion based on this General Escrow Agreement, the Merger Agreement, the CPR Rules, and other
factors consistent with applicable law and the Parent and the Shareholders’ Representative will
cause such decision to be furnished in writing to the Escrow Agent, the Shareholders’
Representative, and Parent. The final decision of the arbitrator will constitute a conclusive
determination of the issue in question and will be binding on the Shareholders’ Representative and
Parent. The arbitrator will have the authority to grant any equitable and legal remedies that
would be available in any judicial proceeding instituted to resolve a Contested Claim. Any
judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction
over the subject matter of this General Escrow Agreement.

                    2.3.3.3 Compensation of Arbitrator. Any such arbitration will be conducted before a
single arbitrator who will be compensated for his or her services, as provided below in
Section 2.3.3.5, at a rate to be determined by mutual agreement of Parent and the Shareholders’
Representative or under the CPR Rules, but based upon reasonable hourly or daily consulting rates
for the arbitrator in the event Parent and the Shareholders’ Representative are not able to agree
upon his or her rate of compensation. Parent will pay the fees and costs of the arbitrator, but
may request that the arbitrator award reimbursement of all or a portion of such fees and costs from
the General Escrow Amount in accordance with the provisions of Section 2.3.3.5.

                    2.3.3.4 Selection of Arbitrator. Parent and the Shareholders’ Representative will
select the arbitrator by mutual agreement promptly following initiation of arbitration in
accordance with the CPR Rules; provided, that in the event Parent and the Shareholders’
Representative are unable to reach an agreement within 20 calendar days of initiation, Parent and
the Shareholders’ Representative will each select one arbitrator from a list provided by CPR (the
“CPR List”), and the two arbitrators selected will select a third arbitrator, which arbitrator will
be the sole arbitrator for the purpose of resolving the Contested Claim; provided further, that in
the event the two arbitrators are unable to reach agreement on the third arbitrator within
30 calendar days of initiation, CPR will have the authority to select an arbitrator from the CPR
List provided to Parent and the Shareholders’ Representative. Any arbitrator selected to serve
will be qualified by training and experience for the matters for which such arbitrator is
designated to serve.

                    2.3.3.5 Payment of Costs. The prevailing party in any arbitrations, as determined by
the arbitration, will be entitled to an award of reasonable attorneys’ fees and costs, and all
costs of arbitration paid or payable by such party, including those provided for above, will be
allocated among Parent and the Shareholders’ Representative in the discretion of the arbitrator.
Any amounts payable to Parent or the Shareholders’ Representative under this subsection will be
specified in the Arbitrator’s Award and, if awarded to Parent, will be reimbursed as if the amount
of the awarded fees and expenses were an Uncontested Claim and, if awarded to the Shareholders’
Representative, upon receipt by the Escrow Agent of a written notice from the Shareholders’
Representative attaching a copy of such award, decision, report, or finding and setting forth the
amount to be released, the Escrow Agent will promptly take all steps to release such portion of the
General Escrow Amount, net of any related expenses previously paid, to the Shareholders’
Representative pursuant to Sections 3.1 and 5.3 hereof, and neither Parent nor the Shareholders’
Representative will have any further liability for amounts payable under this Section 2.3.3.5.

                    2.3.3.6 Terms of Arbitration. The arbitrator chosen in accordance with these
provisions will not have the power to alter, amend, or otherwise affect the terms of these
arbitration

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provisions or the provisions of this General Escrow Agreement, the Merger Agreement, or any
other documents that are executed in connection herewith or therewith.

                    2.3.3.7 Exclusive Remedy. Arbitration or mediation under this Section 2.3.3 will be
the sole and exclusive remedy of Parent and the Shareholders’ Representative for any Contested
Claim arising out of this General Escrow Agreement and any other dispute between Parent and the
Shareholders’ Representative under this General Escrow Agreement.

Article 3

Release From General Escrow.

     3.1 Release Date and Reduction of Escrowed Property. Subject to Section 3.2 of this
General Escrow Agreement, on the Release Date, the Escrow Agent will release and deliver to the
holders of Company Shares in accordance with the percentages included on Schedule A
attached hereto, after, in accordance with the provisions of Article 9, deducting and withdrawing
for its own account any outstanding amounts due to the Escrow Agent, (i) the Additional Funds and
(ii) the amount by which the General Escrow Amount exceeds the sum of: (a) any Contested Amounts
that may be subject to delivery to Parent in accordance with Section 2.3.2 with respect to
Contested Claims made before the Release Date; (b) any amounts in respect of Uncontested Claims
that have not been released as of the Release Date (together with the amounts in subsection (a),
the “Retained General Escrow”) and (c) any amounts then due to the Shareholders’ Representative
under Section 5.3. All amounts to be released by the Escrow Agent shall be calculated by Parent.
Any Retained General Escrow remaining after resolution and payment of all Claims made under a
Notice of Claim properly delivered before the Release Date will first be paid to the Shareholders’
Representative in accordance with a claim for reimbursement delivered by the Shareholders’
Representative to the Escrow Agent in accordance with Section 5.3 and delivered to the address
included in Section 11.3 for any amounts then due thereto under Section 5.3. Thereafter, the
Escrow Agent will promptly deliver the remaining Retained General Escrow to the holders of Company
Shares in accordance with the percentages included on Schedule A. The Escrow Agent will
deliver any amounts to be delivered to the Shareholders’ Representative or to the holders of
Company Shares under this Section 3.1 in accordance with a Release Notice (as defined below)
setting out the portion of the Escrowed Property to be released by the Escrow Agent (including the
amount to be released to each holder of Company Shares) to their addresses, as included on
Schedule A (or such other address as a holder of Company Shares has provided to the
Shareholders’ Representative who in turn has provided to the Escrow Agent at least five Business
Days (as defined below) before the Escrow Agent’s delivery of such amounts). The Escrow Agent will
deliver any amounts due to the Shareholders’ Representative in accordance with Section 5.3 to the
address included in Section 11.3. For the purposes of this General Escrow Agreement, “Business
Day” means any day which is not a Saturday, a Sunday, or a day on which banks and trust companies
in the State of New York or the State of California are authorized or obligated by law, regulation
or executive order to remain closed.

     3.2 Release Administration. At least five Business Days before the Release Date,
Parent will execute and provide to the Escrow Agent and the Shareholders’ Representative a written
notice (“Release Notice”) to be countersigned by the Shareholders’ Representative, (i) instructing
the Escrow Agent to deliver to each holder of Company Shares such holder’s portion of the amount of
the Escrowed Property to be released thereon, calculated by Parent in accordance with Section 3.1,
(ii) instructing the Escrow Agent to reimburse the expenses of the Shareholders’ Representative
under Section 5.3 and (iii) instructing the Escrow Agent to deliver the Note (if any outstanding
principal amount is remaining on the Note) to the Shareholders’ Representative on the Release Date.
If the Shareholders’ Representative approves such Release Notice, he or she will countersign the
Release Notice and forward a copy of such countersigned Release Notice to the Escrow Agent. If the
Shareholders’ Representative does not approve

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of such Release Notice, he or she will provide the Escrow Agent and Parent with written notice
of such disapproval (the “Dispute Notice”). Any part of the General Escrow Amount that is not
agreed by the Shareholders’ Representative to be released under the Release Notice will also be a
Contested Amount. Upon receipt of such Dispute Notice, if Parent and the Shareholders’
Representative cannot resolve the disagreement within 20 calendar days of the delivery of the
Dispute Notice, they will resolve such dispute as a Contested Claim. Any amount paid by the Parent
to the Escrow Agent on the Release Date shall be deemed to be part of the General Escrow Amount for
the purposes of Section 3.1 of this General Escrow Agreement. On the Release Date, the Escrow
Agent shall promptly deliver and return the Note to the Shareholders’ Representative, whereupon the
Shareholders’ Representative may make demand upon the Note pursuant to its terms. Upon such
delivery and return, the Escrow Agent shall have no further obligations, responsibilities or
liabilities with respect to the Note, and any amounts payable with respect to the Note shall be
deemed not to be part of the General Escrow Amount. The Escrow Agent will deliver the portion of
the General Escrow Amount that is not the Contested Amount to the holders of Company Shares on the
Release Date. The Escrow Agent will not be required to deliver any of the Contested Amount on the
Release Date until the Escrow Agent has received a Release Notice signed by both Parent and the
Shareholders’ Representative or, in the event Parent and the Shareholders’ Representative fail to
execute and deliver a jointly approved Release Notice, an Arbitrator’s Award which specifies the
distribution from the General Escrow Amount, each such notice, award, or decision to include the
amount of cash to be delivered to each holder of Company Shares and to be accompanied by written
notice by Parent addressed to the Escrow Agent to the effect that such notice, award, or decision
is final and non-appealable. In the event that following the Release Date Parent and the
Shareholders’ Representative disagree as to the amount of the General Escrow Amount to be released,
such dispute will be resolved as a Contested Claim in accordance with Section 2.3. Notwithstanding
the foregoing provisions and anything herein to the contrary, Parent and the Shareholders’
Representative may provide the Escrow Agent with joint written instructions executed by Parent and
the Shareholders’ Representative with respect to the disbursement of the Escrowed Property at any
time, and Escrow Agent shall promptly disburse the Escrowed Property in accordance with the terms
of such joint instructions.

9

 

Article 4

Escrow Agent.

     4.1 Duties. The duties of the Escrow Agent hereunder will be entirely administrative
and not discretionary. The duties, responsibilities, and obligations of the Escrow Agent will be
limited to those expressly included herein (and no duties, responsibilities or obligations shall be
implied or inferred) and the Escrow Agent will not have any responsibility as to the accuracy of,
and will incur no liability with respect to, any written notice, instruction, direction, request or
other communication, representation, warranty, agreement, or covenant made by any other party
hereto and will be fully protected in acting in the absence of bad faith upon any written notice,
instruction, direction, request or other communication that the Escrow Agent believes to be genuine
and will have no duty to inquire into or investigate the validity, accuracy, or content of any
thereof. The Escrow Agent is not obligated to make any independent calculations under this General
Escrow Agreement, but will be obligated to act only in accordance with written instructions
received by it as provided in this General Escrow Agreement and is authorized hereby to comply with
any orders, judgments, or decrees of any court with jurisdiction and any Arbitrator’s Award and
will not be liable as a result of its compliance with the same. The Escrow Agent will not be
deemed to have knowledge of any event under this General Escrow Agreement unless and until it
receives written notice thereof. None of the provisions of this General Escrow Agreement will
require the Escrow Agent to use, advance, or expend its own funds in the performance of any of its
duties hereunder or to take any action which it believes would expose it to expense or liability or
to a risk of incurring expense or liability, unless it has been furnished with assurances of
repayment or indemnity satisfactory to it. The Escrow Agent may execute any of its trusts or
powers and may perform any of its duties, responsibilities or obligations under this General Escrow
Agreement by or through attorneys, agents, accountants or employees. Notwithstanding anything
herein to the contrary, the Escrow Agent is not responsible for, nor expected to be aware of, the
contents of the Merger Agreement and will not be required to comply with, or determine if any
person or entity has complied with, the terms of the Merger Agreement or any other agreement, even
though reference thereto may be made in this General Escrow Agreement and the Note, or to comply
with any notice, instruction, direction, request or other communication, paper or document other
than as expressly set forth in this General Escrow Agreement.

     The Escrow Agent shall not be liable for any error of judgment or for any action taken,
suffered or omitted to be taken except in the case of its own gross negligence, willful misconduct,
or bad faith, as determined by a final non-appealable order, judgment, decree or ruling of a court
of competent jurisdiction. In no event shall the Escrow Agent be liable for acting in accordance
with any notice, instruction, direction, request or other communication, paper or document from the
Parent or the Shareholders’ Representative authorized hereunder. The Escrow Agent may engage or be
interested in any financial or other transaction with any party hereto or affiliate thereof, and
may act on, or as depositary, trustee or agent for, any committee or body of holders of obligations
or such party or affiliate, as freely as if it were not the Escrow Agent hereunder. The Escrow
Agent shall not take instructions or directions except those given in accordance with this General
Escrow Agreement. The Escrow Agent shall not incur any liability for not performing any act, duty,
obligation or responsibility by reason of any occurrence beyond the control of the Escrow Agent
(including without limitation any act or provision of any present or future law or regulation or
governmental authority, any act of God, war, civil disorder or failure of any means of
communication). The Escrow Agent shall not be called upon to advise any person or entity as to any
investments with respect to any security, property or funds held in escrow hereunder or the
dividends, distributions, income, interest or earnings thereon.

     4.2 Legal Opinions. As to any legal questions arising in connection with the
administration of this General Escrow Agreement, the Escrow Agent may rely absolutely upon any
joint written instruction of Parent and the Shareholders’ Representative or the opinions or advice
given to the Escrow

10

 

Agent by its counsel (which counsel may be an employee of the Escrow Agent or may also be
counsel to one or more parties to this General Escrow Agreement other than counsel to the Parent or
the Shareholders’ Representative) and will be free of liability resulting from any delay due to
waiting for, or taking, suffering, or omitting to take any action in reliance on, such opinions or
advice.

     4.3 Signatures. The Escrow Agent may rely absolutely upon the genuineness and
authorization of the signature and purported signature of any party upon any instruction, notice,
release, receipt, or other document delivered to it under this General Escrow Agreement. Set forth
in Schedule C hereto is an incumbency certificate setting forth the names and specimen
signatures of the persons authorized to act for the Parent. The Escrow Agent shall be entitled to
rely upon such designation until a replacement incumbency certificate is provided to the Escrow
Agent. Set forth in Schedule D hereto is an incumbency certificate setting forth the names
and specimen signatures of the persons authorized to act for the Shareholders’ Representative. The
Escrow Agent shall be entitled to rely upon such designation until a replacement incumbency
certificate is provided to the Escrow Agent.

     4.4 Receipts and Releases. The Escrow Agent may, as a condition to the disbursement
of monies or disposition of securities as provided in this General Escrow Agreement, require from
the payee or recipient a receipt therefore and, upon final payment or disposition, a release of the
Escrow Agent by Parent and Shareholders’ Representative from any liability arising out of its
execution or performance of this General Escrow Agreement, the release to be in a form reasonably
satisfactory to the Escrow Agent.

     4.5 Refrain from Action. The Escrow Agent will be entitled to refrain from taking any
action contemplated by this General Escrow Agreement in the event it becomes aware of any dispute
between the Shareholders’ Representative and Parent and will be fully protected and will not be
liable in any way to Parent, the Shareholders’ Representative, any holder of Company Shares or any
other person or entity for failure or refusal to take such action. In the event the Escrow Agent
believes any ambiguity or uncertainty exists hereunder or in any notice, instruction, direction,
request, or other communication, paper, or document received by the Escrow Agent hereunder, the
Escrow Agent, may, in its sole discretion, refrain from taking any action, and will be fully
protected and will not be liable in any way to Parent, the Shareholders’ Representative, or any
holder of Company Shares or other person or entity for refraining from taking such action, unless
the Escrow Agent receives written instructions signed by Parent and the Shareholders’
Representative that eliminate such ambiguity or uncertainty to the satisfaction of the Escrow
Agent. Notwithstanding anything in this General Escrow Agreement to the contrary, if at any time
the Escrow Agent is served with any judicial or administrative order, judgment, decree, writ or
other form of judicial or administrative process which in any way affects the Escrow Agent or the
Escrowed Property (including without limitation orders of attachment or garnishment or levies or
injunctions), the Escrow Agent is authorized to comply therewith in a manner consistent with the
terms thereof, and shall be fully protected in doing so even if such order, judgment, decree, writ
or process may be subsequently amended, modified, vacated or otherwise determined to be invalid or
without legal force or effect.

     4.6 Interpleader. If any controversy arises between Parent and the Shareholders’
Representative or with any third person, the Escrow Agent will not be required to determine the
same or to take any action, but the Escrow Agent in its discretion may (a) institute such
interpleader or another appropriate action, suit or proceeding in a court of competent jurisdiction
seeking to resolve such dispute or claims and/or (b) refrain from complying with any claim, notice,
instruction, direction, request or other communication, paper or document, so long as such dispute
or conflict shall continue, and (in either case) shall not be liable in any way to the Parent, the
Shareholders’ Representative or any other person or entity for failure or refusal to comply with
such conflicting claims, notices, instructions, directions, requests, communications, papers or
documents until the Escrow Agent is satisfied, in its sole discretion, that such conflicting
claims, notices, instructions, directions, requests, communications, papers or documents have been
definitively determined by a final, non-appealable order, judgment, decree or ruling of a court of

11

 

competent jurisdiction or settled by agreement between the conflicting parties as evidenced in
a writing satisfactory to the Escrow Agent.

Article 5

Indemnification.

     5.1 Waiver and Indemnification. The Parent and the Shareholders’ Representative agree
to and hereby do waive any suit, claim, demand, or cause of action of any kind that they may have
or may assert against the Escrow Agent and the Escrow Agent will not be liable for any action
taken, suffered, or omitted to be taken hereunder arising out of or relating to the execution,
administration, or performance by the Escrow Agent of this General Escrow Agreement, unless such
suit, claim, demand, or cause of action is based upon the gross negligence, bad faith or willful
misconduct of the Escrow Agent, each as determined by a final non-appealable order, judgment,
decree or ruling of a court of competent jurisdiction. Notwithstanding anything in this General
Escrow Agreement to the contrary, the Escrow Agent will not be liable in any event for special,
punitive, indirect, incidental, or consequential losses or damages of any kind whatsoever
(including lost profits), even if the Escrow Agent has been advised of the likelihood of such loss
or damage and regardless of the form of action. Any liability of the Escrow Agent under this
Agreement shall be limited to the amount of annual fees paid to the Escrow Agent hereunder. Parent
further agrees to indemnify the Escrow Agent and its affiliates and their respective successors,
assigns, directors, officers, employees, and consultants (collectively the “Indemnitees”) and to
defend and to hold the Indemnitees harmless against and from any and all claims, demands, claims,
judgments, settlements, actions, suits, proceedings, litigations, investigations, costs, damages,
losses, penalties, liabilities, and expenses, including reasonable attorneys’ fees, that may be
asserted against it or to which it may be exposed or that the Indemnitees may incur for any action
taken, suffered, or omitted to be taken, by reason of the execution, delivery, administration, or
performance of this General Escrow Agreement, the enforcement of any rights or remedies under or in
connection with this General Escrow Agreement, the establishment of the Escrowed Property, the
acceptance or administration of the Escrowed Property and any payment, transfer or other
application of funds pursuant to this General Escrow Agreement, or as may arise by reason of any
act, omission or error of the Indemnitee, except to the extent attributable to such Indemnitee’s
gross negligence, bad faith or willful misconduct, each as determined by a final non-appealable
order, judgment, decree or ruling of a court of competent jurisdiction. This paragraph will
survive the resignation, removal or termination of the Escrow Agent and the termination of this
General Escrow Agreement until extinguished by any applicable statute of limitations. Parent will
pay the reasonable costs and expenses of the Escrow Agent incurred in enforcing this right of
indemnification.

     5.2 Conditions to Indemnification. In case any litigation is brought against the
Escrow Agent or other Indemnitee in respect of which indemnification may be sought hereunder, the
Escrow Agent will give prompt notice of that litigation to the other parties hereto, and the
parties upon receipt of that notice will have the obligation and the right to assume the defense of
such litigation, provided that failure of the Escrow Agent to give such notice will not relieve the
parties hereto from any of their obligations under this Article 5 except to the extent that such
failure materially prejudices the defense of such litigation by said parties, but only to the
extent of such prejudices. At its own expense, the Escrow Agent may, but will not be expected to,
employ separate counsel and participate in the defense of any litigation so assumed by the parties
hereto, provided that if the Escrow Agent is advised by its own counsel that there are material
legal defenses available to it or any Indemnitee which are different from or additional to those
available to any or all of the parties hereto, or a conflict of interest exists between any of the
parties, the Escrow Agent or such Indemnitee will be entitled to obtain its own separate attorney
whereby the Parent and the Shareholders’ Representative will pay the reasonable attorneys’ fees and

12

 

expenses for such attorney. The parties hereto will not be liable for any settlement without
their respective written consents.

     5.3 Indemnification and Expenses of Shareholders’ Representative.

                    (a) The Shareholders’ Representative will be entitled to submit a claim and receive
reimbursement from the General Escrow Amount for all reasonable, documented out-of-pocket expenses
and the reasonable fees and disbursements of counsel (including expenses to be paid under this
General Escrow Agreement) incurred by the Shareholders’ Representative as a result of acting as the
Shareholders’ Representative; provided, however, that except as otherwise provided in Section 3.1,
such claims for reimbursement will be satisfied only to the extent the General Escrow Amount
exceeds the sum of all Contested Amounts (it being understood that such claims for reimbursement
will remain outstanding and will be paid at such time, if ever, as, and to the extent that, the
General Escrow Amount exceeds the sum of all Contested Amounts). In addition, the Shareholders’
Representative will be entitled to submit a claim and receive reimbursement from the General Escrow
Amount for all reasonable documented out-of-pocket expenses, including the reasonable fees and
disbursements of counsel, incurred by the Shareholders’ Representative as a result of acting as the
Shareholders’ Representative. Any such amount will be paid in cash out of the General Escrow
Amount and charged against the holders of Company Shares on a pro rata basis in accordance with
the percentages included on Schedule A attached hereto. The Escrow Agent will not make any
distributions under this Section 5.3 unless and until it has received from the Shareholders’
Representative (1) a signed certification that the requested reimbursement meets all of the
requirements of this Section 5.3 for a release from the General Escrow Amount, and (2) in the case
of a release from the General Escrow Amount, a Release Notice under Section 3.2 directing the
Escrow Agent to distribute to the Shareholders’ Representative such amounts as are included in such
certification. In the event of a request for payment from the General Escrow Amount pursuant to
this Section 5.3(a), the Shareholders’ Representative will, at the addresses provided for in
Section 11.3, provide Parent with a copy of such certification not less than ten Business Days
before the requested payment date, which in no case will be earlier than the Release Date.

                    (b) The Shareholders’ Representative will not be liable for any act done or omitted hereunder
as Shareholders’ Representative while acting in good faith. Holders of Company Shares on whose
behalf cash in the General Escrow Amount was contributed to the General Escrow Amount, will
severally indemnify the Shareholders’ Representative and hold the Shareholders’ Representative
harmless against all loss, liability, or expense incurred without gross negligence, bad faith, or
willful misconduct on the part of the Shareholders’ Representative and arising out of or in
connection with the acceptance or administration of the Shareholders’ Representative’s duties
hereunder, including the reasonable fees and expenses of any legal counsel retained by the
Shareholders’ Representative, in all cases limited to the General Escrow Amount available for
distribution as set forth herein. The Shareholders’ Representative will be entitled to submit a
claim and receive reimbursement from the General Escrow Amount for such losses, liabilities, and
expenses; provided, however, that with respect to any claims by the Shareholders’ Representative
for reimbursement under the General Escrow Amount such claims for reimbursement will be satisfied
to the extent the General Escrow Amount exceeds the sum of all Contested Amounts (it being
understood that such claims for reimbursement will remain outstanding and will be paid at such
time, if ever, as, and to the extent that, the General Escrow Amount exceeds the sum of all
Contested Amounts), and will be paid on or after the Release Date in accordance with Section 3.1.

                    (c) A decision, act, consent, or instruction of the Shareholders’ Representative will
constitute a decision of all holders of Company Shares and will be final, binding, and conclusive
upon each holder of Company Shares. The Escrow Agent, Parent, and all other persons entitled to
indemnification under this General Escrow Agreement, the Merger Agreement, or any other

13

 

document or agreement entered into in connection herewith or therewith (the “Indemnified
Persons”) may rely upon any such decision, act, consent, or instruction of the Shareholders’
Representative as being the decision, act, consent, or instruction of each and every such holder of
Company Shares. The Escrow Agent, Parent, and all other Indemnified Persons are hereby relieved
from any liability to any person for any acts done by them in accordance with such decision, act,
consent, or instruction of the Shareholders’ Representative.

Article 6

     6.1 Resignation of Shareholders’ Representative. The Shareholders’ Representative may
resign at any time under the provisions of Section 10.13(b) of the Merger Agreement. The Escrow
Agent will have no duty or obligation to recognize or acknowledge any successor Shareholders’
Representative unless and until it has received written notice thereof from (a) the holders of a
majority in interest of the General Escrow Amount or (b) the former Shareholders’ Representative
together with a specimen signature of such successor Shareholders’ Representative.

Article 7

     7.1 Acknowledgment by the Escrow Agent. By execution and delivery of this General
Escrow Agreement, the Escrow Agent acknowledges that the terms and provisions of this General
Escrow Agreement are acceptable and it agrees to carry out the express provisions of this General
Escrow Agreement on its part.

Article 8

Resignation or Removal of The Escrow Agent; Successor.

     8.1 Resignation and Removal.

          8.1.1 Notice. The Escrow Agent may resign as such following the giving of not less
than 30 calendar days’ prior written notice to Parent and the Shareholders’ Representative.
Similarly, the Escrow Agent may be removed and replaced following the giving of at least 30
calendar days’ prior written notice to the Escrow Agent jointly by the Shareholders’ Representative
and Parent.

          8.1.2 Court Appointment. If Parent and the Shareholders’ Representative are unable to
agree upon a successor or will have failed to appoint a successor before the expiration of 30
calendar days following the date of the notice of resignation or removal, then the acting Escrow
Agent may petition any court of competent jurisdiction for the appointment of a successor Escrow
Agent or other appropriate relief, and any such resulting appointment will be binding upon all of
the parties hereto.

          8.2 Successors. Every successor Escrow Agent appointed hereunder will execute,
acknowledge and deliver to its predecessor, and also to the Shareholders’ Representative and
Parent, an instrument in writing accepting such appointment hereunder, and thereupon such
successor, without any further act, will become fully vested with all the duties, responsibilities
and obligations of its predecessor; but such predecessor will, nevertheless, on the written request
of its successor or Parent or the Shareholders’ Representative, execute and deliver an instrument
or instruments transferring to such successor all the rights of such predecessor hereunder, and
will duly assign, transfer, and deliver all property, securities, and monies held by it under this
General Escrow Agreement to its successor. Should any instrument be required by any successor to
more fully vest in such successor the duties, responsibilities, and obligations hereby vested or
intended to be vested in the predecessor, any and all

14

 

such instruments in writing will, on the request of any of the other parties hereto, be
executed, acknowledged, and delivered by the predecessor.

     8.3 New Escrow Agent. In the event of an appointment of a successor Escrow Agent, the
predecessor will cease to be the Escrow Agent of any funds and records it may hold under this
General Escrow Agreement and the successor will become such Escrow Agent. Any person or entity
into which the Escrow Agent may be merged or converted or with which it may be consolidated, or any
person or entity resulting from any merger, conversion or consolidation to which the Escrow Agent
will be a party, will, upon written consent of Parent and the Shareholders’ Representative, be the
Escrow Agent under this General Escrow Agreement; provided however, that consent is not required
for a merger, conversion, consolidation, or assignment to an affiliate of the Escrow Agent.

     8.4 Release. Upon written acknowledgment by any successor Escrow Agent of the receipt
of the then remaining balance of the Escrowed Property, the then acting Escrow Agent will be fully
released and relieved of all duties, responsibilities, and obligations under this General Escrow
Agreement that may arise and accrue thereafter.

Article 9

     9.1 Fees of Escrow Agent. The Escrow Agent shall be entitled to compensation for
reasonable out-of-pocket costs and expenses (including without limitation reasonable fees and
disbursements of counsel) in connection with the preparation, negotiation, amendment, modification,
waiver, execution, delivery, performance or enforcement of this Escrow Agreement in accordance with
the fee schedule attached hereto as Schedule B. Parent will pay the Escrow Agent as billed
for services hereunder in accordance with the fee schedule attached hereto as Schedule B.
The Escrow Agent may, in the event of nonpayment by Parent following billing by Escrow Agent
pursuant to Escrow Agent’s standard business practices, charge against and withdraw from the
Escrowed Property for its own account or for the account of an Indemnitee any amounts due to the
Escrow Agent under Section 5.1 or this Article 9 or to an Indemnitee under Section 5.1 or this
Article 9, provided that Escrow Agent has first adequately sought payment for such amounts directly
from Parent pursuant to this Article 9 and Schedule B. In the event that the Escrow Agent
is made a party to litigation with respect to the property held hereunder, or brings an action in
interpleader, or the Escrow Agent has agreed to render any service not provided for in this General
Escrow Agreement and fee schedule, or there is any assignment of the interests under this General
Escrow Agreement or any modification hereof, the Escrow Agent will be entitled to reasonable
compensation from Parent for such extraordinary services and reimbursement for all fees, costs,
liability, and expenses, including but not limited to attorneys’ fees. The provisions of this
Article 9 will survive the termination of this General Escrow Agreement and the resignation,
removal, or replacement of the Escrow Agent.

Article 10

     10.1 Termination. Except as otherwise included herein, this General Escrow Agreement
and the escrows created hereby will terminate following Escrow Agent’s final delivery of the
Escrowed Property to the holders of Company Shares or Parent under Article 2 or 3 of this General
Escrow Agreement or to the Shareholders’ Representative under Section 5.3. The provisions of
Articles 5 and 9 will survive the termination of this General Escrow Agreement and the resignation,
removal, or replacement of the Escrow Agent.

15

 

Article 11

Miscellaneous Provisions.

     11.1 Parties in Interest. Subject to Sections 5.1, 5.2, and 11.9, this General Escrow
Agreement is not intended, nor will it be construed, to confer any enforceable rights on any person
not a party hereto. All of the terms and provisions of this General Escrow Agreement will be
binding upon and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.

     11.2 Entire Agreement. This General Escrow Agreement constitutes the final and entire
agreement among the parties with respect to the subject matter hereof and supersedes all prior
arrangements or understandings.

     11.3 Notices. All notices, requests, demands, or other communications that are
required or may be given under the terms of this General Escrow Agreement will be in writing and
will be deemed to have been duly given (a) on the date of delivery if personally delivered by hand,
(b) upon the third day after such notice is deposited in the United States mail, if mailed by
registered or certified mail, postage prepaid, return receipt requested, (c) one day after such
notice is sent by a nationally recognized overnight express courier, specifying next day delivery,
with written verification of receipt, or (d) if by facsimile, upon electronic confirmation of
successful transmission if sent during normal business hours of the recipient (if not sent during
normal business hours of recipient, then on the next Business Day). All communications will be
sent to the address as included below or at such other address as such party may designate from
time to time by means of five calendar days advance written notice to the other parties hereto
given in the manner provided in this Section 11.3.

	 	 	 	 	 	 	 
	 

	 	(a)
	 	if to Parent, to:
	 	Flow International Corporation

23500 64th Avenue South

Kent, WA 98032

Attention: John Leness

                  General Counsel
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Facsimile No.: (253) 813-3285
	 
	 	 	 	 	 	 
	 

	 	 	 	With a copy to:
	 	K&L Gates LLP
	 

	 	 	 	 	 	925 Fourth Avenue
	 

	 	 	 	 	 	Seattle, WA 98104-1158
	 

	 	 	 	 	 	Attention: Robert S. Jaffe
	 

	 	 	 	 	 	Facsimile No.: (206) 623-7022
	 
	 	 	 	 	 	 
	 

	 	(b)
	 	if to the Shareholders’	 	 
	 

	 	 	 	Representative, to:
	 	John B. Cheung, Inc.
	 

	 	 	 	 	 	Attention:
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	Facsimile No.: [•]
	 
	 	 	 	 	 	 
	 

	 	(c)
	 	If to the Escrow Agent:
	 	The Bank of New York Mellon Trust Company, N.A.
	 

	 	 	 	 	 	700 S. Flower Street, Suite 500
	 

	 	 	 	 	 	Los Angeles, California 90017
	 

	 	 	 	 	 	Attention: Corporate Unit
	 

	 	 	 	 	 	Facsimile No.: (213) 630-6298

16

 

     11.4 Changes. The terms of this General Escrow Agreement may not be modified or
amended, or any provisions hereof waived, temporarily or permanently, except under the written
agreement of Parent, the Shareholders’ Representative, and the Escrow Agent.

     11.5 Severability. In the event of any conflict between the terms and provisions of
this General Escrow Agreement and those of the Merger Agreement, the terms and conditions of this
General Escrow Agreement will apply. If any term or provision of this General Escrow Agreement or
the application thereof as to any person or circumstance will to any extent be invalid or
unenforceable, the remaining terms and provisions of this General Escrow Agreement or the
application of such term or provision to persons or circumstances other than those as to which it
is held invalid or unenforceable will not be affected thereby and each term and provision of this
General Escrow Agreement will be valid and enforceable to the fullest extent permitted by law;
provided, however that if such excluded provision shall materially affect the rights, immunities,
duties or obligations of the Escrow Agent, the Escrow Agent shall be entitled to resign
immediately.

     11.6 Counterparts. This General Escrow Agreement may be executed in two or more
partially or fully executed counterparts each of which will be deemed an original and will bind the
signatory, but all of which together will constitute one and the same instrument. The execution
and delivery of an General Escrow Agreement signature page in the form annexed to this General
Escrow Agreement by any party hereto who will have been furnished the final form of this General
Escrow Agreement will constitute the execution and delivery of this General Escrow Agreement by
such party.

     11.7 USA Patriot Act. In order to comply with its duties under the USA Patriot Act,
the Escrow Agent may obtain and verify certain information and documentation from the other parties
to this General Escrow Agreement including, but not limited to, each such party’s name, address and
other identifying information.

     11.8 Headings. The headings of the various sections of this General Escrow Agreement
have been inserted for convenience of reference only and will not be deemed to be a part of this
General Escrow Agreement.

     11.9 Governing Law. This General Escrow Agreement will be construed and controlled by
the laws of the State of Washington without regard to the principles of conflict of laws, provided,
however, that all provisions regarding the rights, duties, responsibilities and obligations of the
Escrow Agent will be governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such state.

     11.10 Binding Effect. This General Escrow Agreement will inure to the benefit of and
be binding upon the parties hereto and their respective heirs, affiliates, successors and assigns.

[remainder of page intentionally blank]

17

 

ESCROW AGREEMENT — SIGNATURE PAGE

     IN WITNESS WHEREOF, the parties below have duly executed this General Escrow Agreement as of
the date first above written.

	 	 	 	 	 	 	 
	 

	 	PARENT:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	FLOW INTERNATIONAL CORPORATION	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	SHAREHOLDERS’ REPRESENTATIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	JOHN B. CHEUNG, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	ESCROW AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	THE BANK OF NEW YORK MELLON TRUST	 	 
	 	 	COMPANY, N.A.,	 	 
	 	 	as Escrow Agent	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Authorized Signatory	 	 

 

 

SCHEDULE A

OWNERSHIP PERCENTAGES

OF

HOLDERS OF COMPANY SHARES

(see attached)

 

 

SCHEDULE B

 

 

SCHEDULE C

INCUMBENCY AND SIGNATURE CERTIFICATE

     The undersigned hereby certifies to The Bank of New York Mellon Trust Company, N. A. that I am
the Secretary of                      (the “Corporation”), a                     
corporation, and that, as such, I am duly authorized to execute this Certificate on behalf of the
Corporation, and further certifies that each of the following persons, as of the date hereof, is a
duly elected, qualified and acting officer of the Corporation, holding the office of the
Corporation set opposite his name below; and that the signature of each such person appearing
opposite such person’s name below is such person’s own true signature:

	 	 	 	 	 	 	 
	 	 	Name	 	Office	 	Signature
	 

	 	 	 	President	 	 
	 	 
	 

	 	 	 	Vice President	 	 
	 	 
	 

	 	 	 	Treasurer	 	 
	 	 
	 

	 	 	 	Secretary	 	 

     WITNESS the seal of the Corporation and the signature of the undersigned this
                    , 20___.

	 	 	 	 	 
	 

	 	 

Secretary
	 	 

[Corporate Seal]

 

 

SCHEDULE D

INCUMBENCY AND SIGNATURE CERTIFICATE

     The undersigned hereby certifies to The Bank of New York Mellon Trust Company, N. A. that I am
the Secretary of                      (the “Corporation”), a                     
corporation, and that, as such, I am duly authorized to execute this Certificate on behalf of the
Corporation, and further certifies that each of the following persons, as of the date hereof, is a
duly elected, qualified and acting officer of the Corporation, holding the office of the
Corporation set opposite his name below; and that the signature of each such person appearing
opposite such person’s name below is such person’s own true signature:

	 	 	 	 	 	 	 
	 	 	Name	 	Office	 	Signature
	 

	 	 	 	President	 	 
	 	 
	 

	 	 	 	Vice President	 	 
	 	 
	 

	 	 	 	Treasurer	 	 
	 	 
	 

	 	 	 	Secretary	 	 

     WITNESS the seal of the Corporation and the signature of the undersigned this
                    , 20___.

	 	 	 	 	 
	 

	 	 

Secretary
	 	 

[Corporate Seal]

 

 

EXHIBIT I

NOTEexv10w13

Exhibit 10.13

FORM
OF EMPLOYMENT AGREEMENT

     THIS AGREEMENT (“Agreement”), by and between FLOW INTERNATIONAL CORPORATION, a
Washington corporation (the “Company”), and Dr. John B. Cheung (the “Executive”) is
made and is effective as of the Effective Date set forth in Section 2 below.

RECITALS

          A. The Company and OMAX Corporation (the “Seller”) entered into an Agreement and Plan
of Merger between the Company and the Seller dated [ ], 2008 (the “Purchase Agreement”).
Prior to the closing date of the transactions described in the Purchase Agreement (the
“Close”), the Executive was employed as described in the Omax Corporation Independent
Contractor Agreement between Seller and Puget Partners dated April 18, 2002 (“Puget Partners
Agreement”).

          B. The Executive desires to be employed by the Company, and the Company desires to employ the
Executive after the Close, pursuant to the terms and conditions of this Agreement.

TERMS AND CONDITIONS

     In consideration of the mutual covenants set forth herein, the Company and the Executive
hereby agree as follows:

     1. Employment. The Company hereby agrees to employ the Executive, and the Executive agrees to
serve the Company, in the capacities described herein during the Period of Employment (as defined
in Section 2 of this Agreement), in accordance with the terms and conditions of this Agreement.

     2. Period of Employment. The term “Period of Employment” shall mean the period which
commences effective on the Close (the “Effective Date”) and, unless earlier terminated
pursuant to Section 6, ends on the second anniversary of the Effective Date. During the term of
this Agreement, the Company reserves the right to terminate the employment relationship with or
without reason or advance notice, subject to the termination payment provisions set forth in
Section 7. This Agreement may only be extended by the mutual written agreement of the Executive
and the Company. In the event that the Executive’s employment continues with the Company or any of
its affiliates without the Company’s and the Executive’s mutual written agreement after expiration
of this Agreement (an “Extended Period of Employment”), such employment will be on an
at-will basis, and either the Executive or the Company may then terminate the employment
relationship for any reason, with or without notice, and in such event the Executive will not be
entitled to any compensation or benefits following the termination, other than compensation earned
through and including the date of termination of employment, and accrued unused vacation and vested
benefits, if any exist,

 

 

regardless of the reason for termination and regardless of the provisions of Sections 6 and 7
of this Agreement.

     3. Duties During the Period of Employment.

          3.1. Duties. From the Effective Date through the Period of Employment, the Executive shall be
employed as President, OMAX, with the responsibility to lead the Company’s segment for Company’s
standard systems, as well as serving as President of the Seller and as a board member for Seller.
The Executive shall initially report to Charles M. Brown, Company President and CEO
(“CEO”), and shall perform such duties as the Executive shall reasonably be directed to
perform. The Executive’s title, assignment and duties are subject to change at the Company’s
discretion. The Executive will comply with all rules, policies and procedures of the Company as
modified from time to time in the Company’s sole discretion, including, without limitation, rules
and procedures set forth in the Company’s employee handbook as adopted and modified from time to
time. The Executive will perform all of the Executive’s responsibilities in compliance with all
applicable laws and will make diligent efforts to ensure that the operations that the Executive
manages are in compliance with all applicable laws. The Company shall appoint the Executive to the
Board of Directors of Company (“Board”) on or about the Effective Date and, at the next
annual meeting after the Effective Date, shall nominate Executive for an additional term, provided
that he remains employed by the Company at such time. The Executive shall serve on the Board for
no consideration other than that provided for in this Agreement.

          3.2. Scope. From and after the Effective Date and continuing through the Period of Employment
and any Extended Period of Employment, the Executive shall devote substantially all of his business
time and attention to the business and affairs of the Company. It shall not be a violation of this
Agreement for the Executive to (i) deliver occasional lectures, fulfill occasional speaking
engagements or teach occasional courses or seminars at educational or professional institutions or
(ii) manage personal investments, so long as such activities do not interfere, in the sole judgment
of the CEO, in any significant respect, with the Executive’s responsibilities hereunder.
Furthermore, it shall not be a violation of this Agreement for the Executive to (i) serve on no
more than two (2) civic or charitable boards or committees or (ii) serve as a director on the board
of directors of not more than one other public company, in each case with the prior permission of
the CEO.

     4. Compensation and Other Payments.

          4.1. Salary. For the period beginning on the Effective Date and continuing through the Period
of Employment, the Company shall pay the Executive a base salary at the rate of $270,000 per year
(the “Base Salary”). The Executive’s Base Salary shall be paid in accordance with the
Company’s executive payroll practice. The Base Salary will remain unchanged during the Period of
Employment. During any Extended Period of Employment, the CEO or his designee may in his sole
discretion increase or decrease the Base Salary.

          4.2. Annual Incentive Plans. Executive will be entitled to participate, on a basis prorated
for the actual period of employment, in the Fiscal 2009 Annual Cash Incentive

2

 

Plan for Management Employees (“CIP”). Executive shall participate in the CIP at a
40% bonus target, subject to all terms and conditions of the CIP. The bonus program replaces and
supersedes any other bonus programs, including bonus programs or arrangements with Seller (either
directly or through Puget Partners).

     5. Other Executive Benefits.

          5.1. Regular Reimbursed Business Expenses. Subject to the Executive’s compliance with the
policies and procedures applicable to all senior executives of the Company, the Company shall
reimburse the Executive for all expenses and disbursements reasonably incurred by the Executive in
the performance of his duties hereunder during the Period of Employment and any Extended Period of
Employment.

          5.2. Benefit Plans. During the Period of Employment and any Extended Period of Employment,
the Executive shall be entitled, to the extent such benefits are provided by the Company and
subject to any normally applicable waiting periods and eligibility criteria, to participate, on a
basis commensurate with the Executive’s position, in any group and/or executive life,
hospitalization or disability insurance plan, health program, pension, profit sharing, Employee
Stock Ownership Plan, 401(k) and similar benefit plans (qualified, non-qualified and supplemental)
or other fringe benefits (it being understood that items such as stock options and other equity
awards are not “similar benefit plans” or “fringe benefits”) of the Company (collectively referred
to as the “Benefits”). Nothing in this Section 5.2 shall obligate the Company to establish
or amend any benefit plans or programs to cover the Executive nor limit the Company’s right to
amend or terminate its benefit plans at any time, in its sole discretion.

          5.3. Vacation. The Executive shall be entitled to four (4) weeks of vacation in each calendar
year during the Period of Employment and any Extended Period of Employment, prorated for any
partial calendar year. Use of vacation will be governed by the Company’s employee handbook as
adopted and modified from time to time.

     6. Termination.

          6.1. Death. This Agreement and the Period of Employment and any Extended Period of Employment
shall terminate automatically upon the Executive’s death.

          6.2. Total Disability. This Agreement and Executive’s employment hereunder shall terminate
upon the Total Disability, as defined below, of Executive. The term “Total Disability” as
used herein shall mean Executive’s inability (with or without such accommodation as may be required
by law protecting persons with disabilities and that places no undue burden on the Company) as
determined in good faith by the Board and memorialized in a written Notice of Termination, to
perform his duties hereunder for a period of one hundred twenty (120) consecutive days or periods
aggregating one hundred eighty (180) calendar days within twelve (12) consecutive months as a
result of physical or mental illness, unless Executive is granted a leave of absence by the Board.
Executive and the Company hereby acknowledge that Executive’s ability to perform the duties
contemplated by Section 3 is of the essence of this

3

 

Agreement. It is understood that nothing in this Section 6.2 shall serve to limit the
Company’s obligations under Section 7.2.

          6.3. By the Company for Cause. During the Period of Employment, the Company may terminate the
Executive’s employment immediately for “Cause.” For purposes of this Agreement, “Cause”
means a good faith determination by the Company that (i) the Executive failed to perform any
material duties as an employee of the Company, (ii) the Executive failed to observe material
Company policies and/or policies of affiliates of the Company, (iii) gross negligence or willful
misconduct by the Executive in the performance of his duties, (iv) the Executive engaged in fraud,
theft, material dishonesty, embezzlement, or material misrepresentation or omission with respect to
the Company or any of its affiliates, or engaged in conduct that would constitute a felony or any
criminal act involving moral turpitude, (v) the material breach by the Executive of this Agreement,
including but not limited to any material breach by the Executive of the provisions of Sections 3
and 10 hereof, or (vi) the Executive’s employment with the Company or performance of duties within
that employment violates any obligation by the Executive to any third party not to engage in such
employment or duties. Each of the foregoing clauses (i), (ii) and (v) is subject to the condition
that “Cause” shall only be established after the Company provides the Executive written notice of
the facts that the Company alleges constitute “Cause” and twenty (20) days to cure.
Notwithstanding the foregoing, such cure period need only be provided if (A) the breach or
noncompliance is curable and (B) no similar breach or noncompliance that was previously cured has
occurred.

          6.4. By Executive for Good Reason. During the Period of Employment, the Executive’s
employment hereunder may be terminated by the Executive for Good Reason upon thirty (30) days’
written notice. For purposes of this Agreement, “Good Reason” means, without the
Executive’s written consent, (i) any material breach of this Agreement by the Company, or (ii) any
relocation of the Executive’s office as assigned to him by the Company after the Effective Date to
a location more than fifty (50) miles from the Company’s existing offices in Kent, Washington.
Each of the foregoing clauses is subject to the condition that “Good Reason” shall only be
established after the Executive provides the Company with (i) written notice of the facts that the
Executive alleges constitute “Good Reason” within ninety (90) days of the date Executive learns of
such facts and (ii) thirty (30) days to cure.

          6.5. Other Than for Cause or Good Reason. Subject to the provisions of Section 7, the
Executive or the Company may terminate this Agreement for any reason other than for Good Reason or
Cause, respectively, upon thirty (30) days’ written notice to the Company or the Executive, as the
case may be. In lieu of providing thirty (30) days’ notice, the Company may elect to terminate
the Executive’s services immediately and provide the Executive any salary and benefits due
for such notice period.

          6.6. Notice of Termination. Any termination by the Company or by the Executive during the
Period of Employment shall be communicated by a Notice of Termination to the other party hereto
given in accordance with Section 15.2 of this Agreement. For purposes of this Agreement, a
“Notice of Termination” means a written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in reasonable detail, if applicable, the
facts and circumstances claimed to provide a basis for termination of the

4

 

Executive’s employment under the provision so indicated, and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies the termination
date. The failure by the Executive or Company to set forth in the Notice of Termination any fact
or circumstance which contributes to a showing of the basis for termination shall not waive any
right of such party hereunder or preclude such party from asserting such fact or circumstance in
enforcing his or its rights hereunder.

          6.7. Date of Termination. “Date of Termination” means the date specified in the
Notice of Termination; provided, however, that if the Executive’s employment is terminated by
reason of death, the Date of Termination shall be the date of death of the Executive.

          6.8. Return of Company Equipment. On the date the Executive’s employment relationship with
the Company is terminated, the Executive agrees to immediately return to the Company, at
headquarters in Kent, Washington, all equipment, Confidential Information (as detailed in Section
9.1) and other property of the Company that the Executive may have in his possession, custody, or
control. The Executive shall not be entitled to any post-termination payments or amounts until the
Executive returns all such equipment, Confidential Information, and property to the Company.

     7. Obligations of the Company Upon Termination. The following provisions describe
circumstances under which the Company may be obligated to the Executive upon termination of his
employment under this Agreement.

          7.1. Termination by Death, Total Disability, by the Company for Cause or by Resignation
Without Good Reason. In the event this Agreement terminates by reason of Total Disability, by
reason of the termination of the Executive’s employment by the Company for Cause, or by reason of
the resignation of the Executive other than for Good Reason, the Company shall pay to the Executive
all Accrued Obligations (as defined below). “Accrued Obligations” shall mean, as of the
Date of Termination, the sum of (i) the Executive’s Base Salary through the Date of Termination to
the extent not previously paid, (ii) the amount of any bonus, incentive compensation, deferred
compensation and other cash compensation earned by the Executive under the terms of the relevant
compensation policy as of the Date of Termination to the extent not previously paid and (iii) any
accrued unused vacation pay, expense reimbursements and other cash entitlements earned by the
Executive or that are otherwise owed as of the Date of Termination to the extent not previously
paid. In the event this Agreement terminates by reason of death, the Company shall pay to the
Executive’s estate all Accrued Obligations. To the extent that any of the amounts payable pursuant
to this Section 7.1 during the first six (6) months following the Date of Termination are subject
to the provisions of Section 409A of the Internal Revenue Code of 1986, as amended
(“Code”), and Executive is a specified employee as defined in Code Section 409A(a)(2)(B)(i)
and the regulations thereunder on the Date of Termination at such time, such payments or
compensation will not be paid during the first six (6) months but instead shall be paid in a lump
sum on the six-month anniversary of the Date of Termination.

          7.2. Resignation With Good Reason or Termination Without Cause. If (i) the Company shall
terminate the Executive’s employment other than for Cause (and other than

5

 

due to the Executive’s death or Total Disability) or (ii) the Executive shall terminate his
employment for Good Reason, the Executive shall receive, in addition to the Accrued Obligations,
the following, provided that the obligations of Section 7.2.2 are satisfied:

               7.2.1. For a period of twelve (12) months following the Date of Termination, (a) continuation
of the Executive’s then-current Base Salary, and (b) reimbursement to the Executive for the cost of
health insurance premiums continued pursuant to the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended (“COBRA”), provided that the Executive timely elects COBRA coverage
(collectively “Severance Benefits”). Notwithstanding the foregoing, the Company’s
obligation under this Section 7.2.1(b) to pay Executive’s COBRA premiums shall cease if Executive
is eligible to elect group medical coverage under the group medical plan of another employer of the
Executive or if his spouse can elect to have the Executive covered as her spouse or dependent under
a group medical plan sponsored by her employer, even if the election for such alternative coverage
is not made by the Executive or spouse. Executive shall notify the Company as soon as practicable
when Executive becomes aware of his eligibility to be covered under a group medical plan of another
employer.

     The Severance Benefits will be paid in accordance with the Company’s executive payroll
schedule, and no acceleration of such payments shall be permitted. To the extent that any of the
Severance Benefits payable pursuant to this Section 7.2.1 during the first six (6) months following
the Date of Termination are subject to the provisions of Code Section 409A and Executive is a
specified employee as defined in Code Section 409A(a)(2)(B)(i) and the regulations thereunder on
the Date of Termination, such payments or compensation will not be paid during the first six (6)
months but instead shall be paid in a lump sum on the six-month anniversary of the Date of
Termination.

               7.2.2. As a condition of receiving any payments or other benefits specified in this Section
7.2, the Executive must comply with Section 6.8 and agree to, sign, and not revoke or rescind a
separation agreement in a form provided by the Company, which separation agreement shall include
standard terms such as a full release of all claims against the Company, its officers, directors,
employees, and agents. After the separation agreement becomes effective, the Executive will be
entitled to the payments and benefits specified in Section 7.2.1.

          7.3. Exclusive Rights. It is understood that the Executive’s rights under this Section 7 are
in lieu of all other rights which the Executive may otherwise have had upon termination of
employment under this Agreement.

     8. Mitigation. In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, nor shall any employment of the Executive affect the obligations of
the Company to the Executive under this Agreement except as provided in 7.2.1.

6

 

     9. Restrictive Covenants.

          9.1. Confidential Information. The Executive agrees that, both during and after his
employment by the Company, he will maintain in confidence, and not disclose to any person or entity
or otherwise use, any Confidential Information, except in the good faith performance of his duties
or as authorized by the Company in writing. Further, the Executive agrees that he will not use any
Confidential Information received by the Company from a third party in any manner inconsistent with
any agreement between the Company and such third party of which he is made aware. The Executive
acknowledges that all memoranda, notes, documents, drawings, specifications, software, media and
other materials containing any Confidential Information are the exclusive property of the Company
and, in the event of the termination of his employment, agrees to immediately deliver to the
Company all such material in his possession or control. “Confidential Information” means
any (i) information received by the Company from third parties which the Company is obligated to
keep confidential and (ii) any confidential or proprietary information of the Company whether or
not marked or otherwise designated as confidential including, but not limited to, information that
is not generally known or readily ascertainable outside the Company regarding the Company’s
finances, employees, plans, marketing, customers, vendors, products, technology, designs,
techniques, research, development, testing, know-how and other activities. “Confidential
Information” shall not include analyst reports, public customer solicitations, earnings call
transcripts, interviews in any media format, public investor presentations, press releases by the
Company or companies with which it does business, SEC filings, trade show materials, and other
similar information in the public domain.

          9.2. Non-Competition; Non-Solicitation. The Executive acknowledges that the nature of his
employment with the Company will give him access to trade secrets, confidential information of a
technological nature, and specialized training and expertise in the specific businesses in which
the Company competes. The Executive further acknowledges that he will have access to Confidential
Information concerning customers of the Company and their specialized requirements, and concerning
employees of the Company and their specialized abilities. The Executive acknowledges that the use
of any of this information or expertise on behalf of a competitor of the Company and/or the
solicitation of customers or employees of the Company would constitute unfair competition.
Therefore, the Executive agrees that, during the Term (as defined below), he will not:

               9.2.1. Work directly or indirectly (as an employee, consultant, advisor, owner or otherwise)
for any business or activity which competes anywhere in the Company’s worldwide marketplace with
any product or service of the Company, including any product or service that the Company was
actively researching, developing, manufacturing, marketing, distributing, or otherwise commercially
exploiting or preparing to exploit as of the Date of Termination;

               9.2.2. Encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or
attempt to induce) any customer of the Company to reduce, restrict, or terminate its business
relationship with the Company or to shift its business from the Company to any other supplier of
competing goods or services;

7

 

               9.2.3. Encourage, solicit, or attempt to induce (or assist others to encourage, solicit, or
attempt to induce) any employee of the Company to terminate his/her employment relationship with
the Company or to work elsewhere with the Executive or any other business, person or activity; or

               9.2.4. Except as otherwise approved by the Board in advance, and except as a passive
shareholder of the Company exercising voting rights in the Company, encourage, solicit, engage in,
or be involved with, any offer or proposal for a merger, consolidation, recapitalization,
liquidation or other business combination involving the Company or the acquisition or purchase of
over 5% or more of any class of equity securities of the Company, or any tender offer or exchange
offer that if consummated would result in any person or entity beneficially owning 5% or more of
any class of the equity securities of the Company, or a substantial portion of the assets of, the
Company and its subsidiaries taken as a whole, or any proxy solicitation involving the Company or
members of the Board.

     For purposes of this subsection 9.2, “Term” means the Period of Employment with the
Company, any Extended Period of Employment, as well as a period of two (2) years after termination
of such employment for any reason.

     10. Remedy for Violation of Section 9; Severability.

          10.1. Breach. The Executive acknowledges that the Company has no adequate remedy at law and
will be irreparably harmed if the Executive breaches or threatens to breach the provisions of
Section 9 of this Agreement and, therefore, agrees that the Company shall be entitled to injunctive
relief to prevent any breach or threatened breach of such section and that the Company shall be
entitled to specific performance of the terms of such section in addition to any other legal or
equitable remedy it may have. In the event of a material breach of Section 9, the Company shall be
relieved of the obligation to continue to provide or pay any compensation or benefits otherwise
payable under this Agreement. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have or any other rights
that it may have under any other agreement.

          10.2. Severability. The Executive acknowledges that he has carefully read all of the terms of
Section 9 of this Agreement, that he has been advised by the Company to seek legal advice to assist
him in this and agrees that all of such terms are necessary for the reasonable and proper
protection of the Company’s business, that the Company has been induced to enter into its
relationship with him and provide the consideration described herein upon his representations that
he will abide by and be bound by each of such terms, and that each term is reasonable in its scope
and duration. If for any reason any portion of Section 9 of this Agreement shall be held by a
court of competent jurisdiction to be invalid or unenforceable, the parties agree that the
remaining portions of Section 9 of this Agreement shall remain in full force and effect and that
such court, upon the request of the Company, may construe and/or modify such invalid or
unenforceable portion in a valid and enforceable manner that most closely reflects the effect and
intent of the original language.

8

 

     11. Withholding. Anything in this Agreement to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Executive shall be subject to withholding, at
the time payments are actually made to the Executive and received by him, of such amounts relating
to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law
or regulation. In lieu of withholding such amounts, in whole or in part, the Company may, in its
sole discretion, accept other provision for payment of taxes as required by law, provided that it
is satisfied that all requirements of law as to its responsibilities to withhold such taxes have
been satisfied.

     12. Arbitration. The parties agree that any dispute arising out of this Agreement shall be
resolved by the parties through confidential mediation or final and binding confidential
arbitration. The parties will first attempt to mediate the dispute before a neutral mediator agreed
upon by the parties. If mediation is not successful, the dispute will be submitted to final and
binding confidential arbitration before a neutral arbitrator agreed upon by the parties. Except as
specifically provided herein, the mediation or arbitration shall be governed by the rules of the
American Arbitration Association or such other rules as agreed to by the parties. Both parties
agree that the procedures outlined in this Section 12 are the exclusive methods of dispute
resolution, except for any action by the Company for injunctive relief, which may be brought under
Section 10.1 of this Agreement in a state or federal court of competent jurisdiction. The
mediation or arbitration proceedings shall be conducted in Seattle, Washington or such other
location to which the parties may agree. To the maximum extent permitted by law, the Company will
share equally with the Executive all mediation and arbitration fees and each party will bear their
own respective costs and attorneys fees in the mediation or arbitration; provided that, to the
maximum extent permitted by law, the prevailing party shall be entitled to reasonable attorney’s
fees and costs as awarded by the arbitrator, in his or her discretion.

     13. Successors. This Agreement is personal to the Executive and without the prior written
consent of the Company shall not be assignable by the Executive otherwise than by will or the laws
of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by
the Executive’s heirs and legal representatives. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. As used in this Agreement, the term
“Company” shall include any successor to the Company’s business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or otherwise.

     14. Representations.

          14.1. Representations of the Company. The Company represents and warrants that (i) the
execution of this Agreement has been duly authorized by the Company, including action of the Board,
(ii) the execution, delivery and performance of this Agreement by the Company does not and will not
violate any law, regulation, order, judgment or decree or any agreement, plan or corporate
governance document of the Company and (iii) upon the execution and delivery of this Agreement by
the Executive, this Agreement shall be the valid and binding obligation of the Company, enforceable
in accordance with its terms, except to the extent enforceability may be limited by applicable
bankruptcy, insolvency or similar laws affecting the

9

 

enforcement of creditors’ rights generally and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or at law).

          14.2. Representations of the Executive. The Executive represents and warrants to the Company
that (i) the execution, delivery and performance of this Agreement by the Executive does not and
will not, violate any law, regulation, order, judgment or decree or any agreement to which the
Executive is a party or by which he is bound, (ii) the Executive is not a party to or bound by any
employment agreement, noncompetition agreement or confidentiality agreement with any person or
entity that would interfere with this Agreement or his performance of services hereunder, and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid
and binding obligation of the Executive, enforceable in accordance with its terms, except to the
extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting
the enforcement of creditors’ rights generally and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or at law).

     15. Miscellaneous.

          15.1. Governing Law/Venue. This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington, without reference to principles of choice of law. The
state or federal courts located in King County, Washington, shall have exclusive jurisdiction to
adjudicate disputes arising under this Agreement, and the parties irrevocably consent to the
exercise of jurisdiction of such courts over them. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or their respective
successors or legal representatives.

          15.2. Notices. All notices and other communications hereunder shall be in writing and shall
be given by hand delivery to the other party, by nationally recognized overnight courier, or by
registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

          If to the Executive:

Dr. John B. Cheung

Flow International Corporation

23500 64th Avenue South

Kent, Washington 98032

with a copy to:

[   ]

10

 

          If to the Company:

Flow International Corporation

23500 64th Avenue South

Kent, Washington 98032

Attn: General Counsel

with a copy to:

Robert S. Jaffe, Esq.

K&L Gates LLP

925 Fourth Avenue, Suite 2900

Seattle, Washington 98104

or to such other address as either of the parties shall have furnished to the other in writing in
accordance herewith. Notices and other communications shall be effective upon delivery, which may
be established by a signed receipt or other customary evidence.

          15.3. No Penalty. None of the provisions of this Agreement shall be deemed to impose a
penalty.

          15.4. Enforceability. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement.

          15.5. No Waiver. Any party’s failure to insist upon strict compliance with any provision
hereof shall not be deemed to be a waiver of such provision or any other provision hereof.

          15.6. Integration. Except as stated in this Agreement, there are no other representations or
understandings regarding your employment with the Company, Seller (either directly or through Puget
Partners), or any of their affiliates. This Agreement will supersede any and all written or oral
agreements between you and Seller (either directly or through Puget Partners) and all other
entitlements under their programs (except those benefits under ERISA plans in which you were vested
prior to Close), all of which are hereby waived by you, including without limitation, any
employment agreement between you and Seller, the Puget Partners Agreement, any amendments to such
agreement(s), and any other benefits offered or provided to you by Seller (either directly or
through Puget Partners). Notwithstanding the foregoing, all of your obligations to protect the
confidentiality of information of Seller (either directly or through Puget Partners) or their
affiliates and to assign intellectual property rights to them or otherwise protect their
intellectual property and/or business interests, whether such obligations arose under law or
contracts, shall remain in full force and effect.

          15.7. Counterparts. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which together shall constitute
one and the same instrument.

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11

 

SIGNATURE PAGE

EMPLOYMENT AGREEMENT

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	FLOW INTERNATIONAL CORPORATION	 	 
	 
	 	 	 	 	 	 
	By:

	 	 
 

	 	 	 	  
	Its:

	 	 
 

	 	 	 	  
	 
	 	 	 	 	 	 
	DR. JOHN B. CHEUNG

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