Escrow Agreement, dated May 6, 2011, by and among Motorcar Parts of America, Inc., FAPL Holdings Inc., Jack Shuster, Gordon Fenwick, Paul Fenwick, Joel Fenwick and Stikeman Elliott LLP

(a)

Subject to Section 2.2, within three (3) Business Days of delivery by the Purchaser of notice in writing (the “Indemnity Notice”) to the Escrow Agent with a copy to the Vendor and the Principals certifying:

 

(i)

the amount payable to the Indemnified Person in respect of a Third Party Claim or Direct Claim as determined pursuant to Sections 11, 13, and 14 of the Purchase Agreement (the “Indemnity Payment”); and

 

(ii)

that the Indemnified Parties have not elected to satisfy the Indemnity Payment in cash in lieu of the purchase for cancellation or redemption of Escrowed Shares pursuant to this Agreement and the Purchase Agreement,

(b)

the Escrow Agent shall deliver to the Purchaser share certificates, together with duly executed stock transfer powers of attorney for such shares, representing Escrowed Shares that have a Market Value calculated as of the earlier of (i) the last day of the six (6) month period referred to in Section 13 of the Purchase Agreement and (ii) the date upon which the Indemnifying Parties notify the Purchaser in writing that they will not exercise their option to satisfy any indemnifiable claims in cash in lieu of the redemption or purchase for cancellation of Escrowed Shares.

(a)

Within two (2) Business Days after the date that is eighteen (18) months following the Closing of the transactions contemplated by the Purchase Agreement (the “Expiration Date”), the Purchaser shall deliver a notice in writing to the Escrow Agent, with a copy to the Vendor and the Principals, certifying that the expiration of the Purchaser’s rights to any Indemnity Payment has occurred (the “Expiration Notice”).  On the fifth Business Day immediately following receipt of such notice, the Escrow Agent shall deliver or cause to be delivered to the Vendor share certificates representing any remaining Escrowed Shares registered in the name of the Vendor (or as the Vendor may otherwise direct); unless, before the Expiration Date, the Purchaser has delivered a notice in writing (a “Notice of Claim”) to the Escrow Agent, with a copy to Vendor and the Principals, certifying that there is outstanding a Third Party Claim or Direct Claim for which the Purchaser has sought indemnification pursuant to Sections 11, 13 and 14 of the Purchase Agreement.  If the Purchaser has not delivered an Expiration Notice as aforesaid by the close of business (Toronto time) on the Expiration Date, or if the Purchaser has not delivered a Notice of Claim by the close of business (Toronto time) on the Business Day immediately preceding the Expiration Date, the Purchaser shall be deemed to have delivered an Expiration Notice on the Expiration Date.

(b)

Subject to Section 2.3, if the Escrow Agent receives a Notice of Claim before the Expiration Date, the Escrow Agent shall continue to hold the Escrowed Shares and shall only release them in accordance with:

 

(i)

Section 2.1; or

 

(ii)

Section 2.2(a), mutatis mutandis, provided that the Escrow Agent has received a notice in writing (the “Release Notice”) from the Purchaser (a copy of which the Purchaser has delivered to the Vendor and the Principals) certifying that the matters referred to in the Notice of Claim have been resolved and (i) no amount is payable by the Vendor or the Principals pursuant to Sections 11, 13 and 14 of the Purchase Agreement in respect of such matters, or (ii) the Market Value of the Escrowed Shares (at the Expiration Date) is greater than 1.2 times the amount payable by the Vendor or the Principals, as the case may be, pursuant to Sections 11, 13 and 14 of the Purchase Agreement in respect of such matters. In the case of this subsection 2.2(b)(ii)(ii), the number of Escrowed Shares that shall be released to the Vendor shall be only the Escrowed Shares in excess of the number of Escrowed Shares having a Market Value at the Expiration Date of 1.2 times the maximum amount payable pursuant to the outstanding Direct Claim or Third Party Claim.

(c)

The Purchaser shall deliver the Release Notice to the Escrow Agent, the Vendor and the Principals within two (2) Business Days of the matters referred to in the Notice of Claim being resolved if, in accordance with such resolution, no amount is payable by the Vendor or the Principals pursuant to Sections 11, 13 and 14 of the Purchase Agreement or the amount that is so payable by the Vendor or the Principals in respect of the matters referred to in the Notice of Claim is less than the Market Value of the Escrowed Shares (and only in respect of such excess amount).

(a)

In the event that the Purchaser delivers a Notice of Claim to the Escrow Agent pursuant to Section 2.2(a) which results in the Escrowed Shares being held in escrow beyond the Expiration Date, each Principal shall have the option to deliver, from time to time, a notice in writing to the Escrow Agent (the “Option Notice”), with a copy to the Vendor, the Purchaser and the other Principals, instructing the Escrow Agent to sell up to 90,000 Escrowed Shares (the “Option Sale”) in aggregate, and the Escrow Agent shall sell or cause to be sold the number of Escrowed Shares specified in the Option Notice over the facilities of the NASDAQ  (or the principal trading market on which the MPA Shares are listed at such time) in accordance with the written instructions of the Vendor.  In the event of any ambiguity in such instructions or inability to execute in accordance with such instructions, the Escrow Agent shall not dispose of any such Escrowed Securities.  Any commissions or other charges incurred in connection with such sales shall be borne by the Vendor.

(b)

The Escrow Agent shall not be liable for any action taken or omitted by it in carrying out the Option Sale, or any action suffered by it to be taken or omitted, in good faith, and in the exercise of its best judgment, and shall not be held liable for any error in judgment made in good faith, unless it shall be proved that the Escrow Agent was grossly negligent or acted intentionally in bad faith.

(c)

The proceeds of any such Option Sale (less any commissions and expenses) (the “Escrowed Proceeds”) shall, until such time as the Escrowed Proceeds are distributed by the Escrow Agent as provided herein, be subject to this Agreement as substitute property for the Escrowed Shares subject to the Option Notice and shall be invested in an interest bearing account (or other interest bearing instruments or deposits with) of a Canadian chartered bank to be jointly selected by the Purchaser and the Principal or in any other mutually agreed upon investments.

(d)

The Escrowed Proceeds shall be released by the Escrow Agent in accordance with Sections 2.1 and 2.2, mutatis mutandis (provided that for the purposes of calculating the Market Value of the Escrowed Shares, the Escrowed Proceeds deposited in lieu of the Escrowed Shares shall be valued at the face value of such proceeds without reference to a 1.2 times multiple where otherwise contemplated hereby).

 

(i)

All voting rights attached to the Escrowed Shares will at all times be exercised by the registered owner of the Escrowed Shares; and

 

(ii)

Any dividends received by the Escrow Agent in respect of the Escrowed Shares will be paid or transferred to the Vendor.

(a)

The Escrow Agent shall have no duties or responsibilities other than those expressly set forth in this Agreement, and no additional implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall have no duty to enforce any obligation of any Person, other than as provided herein.

(b)

The Escrow Agent shall not be liable for any action taken or omitted by it, or any action suffered by it to be taken or omitted, in good faith, and in the exercise of its best judgment, and shall not be held liable for any error in judgment made in good faith, unless it shall be proved that the Escrow Agent was negligent in ascertaining the pertinent facts or acted intentionally in bad faith.

(c)

The Escrow Agent may rely, and shall be protected in acting, upon any judgment, order, notice, demand, direction, certificate, or other instrument, paper or document which may be submitted to it in connection with its duties hereunder and the directions incorporated therein and which is believed by the Escrow Agent to be genuine and signed or presented by the proper Person(s), and may accept the same as sufficient evidence of the facts stated therein.  The Escrow Agent shall in no way be bound to call for further evidence (whether as to due execution, validity or effectiveness, or the jurisdiction of any court, or as to the truth of any fact), and shall not be responsible for any loss that may be occasioned by its failing to do so.

(d)

In the event that the Escrow Agent shall become involved in any arbitration or litigation relating to the Escrowed Shares or the Escrowed Proceeds, as the case may be, the Escrow Agent is authorized to comply with any decision reached through such arbitration or litigation.

(e)

In the event that a dispute should arise with respect to this Agreement, which results in an adverse claim or demand being made upon the Escrowed Shares or the Escrowed Proceeds, as the case may be, or in the event that the Escrow Agent, in good faith, is in doubt as to what action it should take hereunder, the Escrow Agent may, at its option, (i) file an application or motion in interpleader in a court of competent jurisdiction, (ii) refuse to comply with any claims or demands on it, (iii) refuse to take any other action hereunder, so long as such dispute shall continue or such doubt shall exist or (iv) pay into court or otherwise deposit the Escrowed Shares or the Escrowed Proceeds, as the case may be, with a court of competent jurisdiction in the Province of Ontario.  Upon the Escrow Agent so depositing the Escrowed Shares or the Escrowed Proceeds, as the case may be, it shall be discharged and released of its duties and obligations hereunder. The Escrow Agent shall be entitled to continue to refrain from acting until (a) the rights of all the parties have been fully and finally adjudicated by the final order, decree or judgment of a court of competent jurisdiction in the province of Ontario (the time for appeal having expired with no appeal having been taken), or (b) all differences shall have been settled and all doubt resolved by agreement among all of the interested persons, and in each case the Escrow Agent shall have been notified thereof in writing signed by the Parties.

(f)

The parties hereto acknowledge and agree that notwithstanding that Stikeman Elliott LLP is acting as Escrow Agent hereunder, Stikeman Elliott LLP shall be entitled to act or continue to act and shall not be disqualified from acting or continuing to act as legal counsel for the Purchaser or any corporation or corporations forming part of the Purchaser both while it is acting as Escrow Agent hereunder and thereafter.

(a)

The Escrow Agent may resign its trust and be discharged from all further duties and liabilities hereunder after giving fifteen days’ written notice to the Parties or such shorter notice as the Parties may accept as sufficient, and may be removed from its office as such Escrow Agent by the Parties jointly at any time by not less than five Business Days’ written notice given to the Escrow Agent.  Upon discharge or removal, the Escrow Agent shall deliver the Escrowed Shares or the Escrowed Proceeds, as the case may be, as directed by the Parties.

(b)

In the event of the resignation of the Escrow Agent or its removal from office, the Parties shall appoint a successor escrow agent which shall be either (i) a trust company that carries on business in Canada or (ii) a partnership of barristers and solicitors not having less than 50 members and an office in the City of Toronto.  The Parties acknowledge that the Escrow Agent has indicated its intention to be replaced as escrow agent hereunder shortly following the Closing.

(c)

The Escrow Agent which resigns or is removed shall execute such further assurances or documents as, in the opinion of the Parties, may be necessary or desirable to vest in the new escrow agent the same powers, rights, duties and responsibilities as if the new escrow agent had been originally named as Escrow Agent.

 

(i)

to the Purchaser at:

 

(ii)

to the Vendor at:

 

(iii)

to the Escrow Agent at:

 

(iv)

to Gordon Fenwick at:

 

(v)

to Paul Fenwick at:

 

(vi)

to Joel Fenwick at:

 

(vii)

to Jack Shuster at:

By:

/s/ Jack Shuster

Name:

Title:

By:

/s/ Selwyn Joffe

Name:

Title:

/s/ Gina Michetti

/s/ Joel Fenwick

Witness

Joel Fenwick

/s/ Gina Michetti

/s/ Jack Shuster

Witness

Jack Shuster

/s/ Gina Michetti

/s/ Gordon Fenwick

Witness

Gordon Fenwick

/s/ Gina Michetti

/s/ Paul Fenwick

Witness

Paul Fenwick

By:

/s/ David Weinberger

Authorized Signing Officer