Indemnification Agreement

This Agreement is by and among ARROW-MAGNOLIA INTERNATIONAL, INC., a Texas corporation ("Arrow-Magnolia"), ARROW ACQUISITION LP, a Texas limited partnership ("Arrow Acquisition"), and ESTELLE SHWIFF ("Shwiff").


RECITALS


A. Arrow Acquisition and Arrow-Magnolia (collectively hereinafter referred to as the "Arrow Entities") are parties to that certain Agreement and Plan of Merger dated as of October 7, 2004, as amended by that certain Amended and Restated Merger Agreement dated as of the date hereof (as so amended, the "Merger Agreement") pursuant to which a merger (the "Merger") of Arrow Acquisition with and into Arrow-Magnolia is to be consummated; and


B. Shwiff has agreed to indemnify the Arrow Entities against certain indemnification claims.


STATEMENT OF AGREEMENT


NOW, THEREFORE, for good consideration, the parties, intending to be legally bound, agree as follows:


1. Indemnification. Until the "Maturity Date" set forth in that certain promissory note (the "Note") in the original principal amount of $200,000.00 to be executed and delivered by Arrow Acquisition to Shwiff at the Closing of the Merger Agreement, Shwiff agrees to indemnify and hold harmless the Arrow Entities from and against any and all amounts, including reasonable attorneys' fees and expenses, which the Arrow Entities may incur (a) with respect to indemnification and advance of expenses the Arrow Entities may be required or permitted to provide under the various Mutual Release and Indemnification Agreements (the "Releases") executed by the Arrow Entities and the various directors, officers and employees of Arrow-Magnolia in connection with the Merger and/or (b) with respect to any and all claims by any holder(s) of any "Dissenting Share(s)," as defined in Section 3.6 of the Merger Agreement. Notwithstanding the foregoing, Shwiff shall not be required to indemnify and hold the Arrow Entities harmless with respect to the first $1.60 per Dissenting Share and the maximum amount that Shwiff shall be required to indemnify and hold the Arrow Entities harmless for shall be limited to $200,000.00.


2. Offset. If any claims are made on or prior to the Maturity Date with respect to which the Arrow Entities may be entitled to indemnification hereunder, then Arrow Acquisition shall be entitled to withhold the amount of such claims from amounts payable under the Note until such time as such claims are resolved. Pending resolution of any such claims, no interest shall accrue with respect to the amounts owed under the Note. If such claims result in the Arrow Entities being entitled to indemnification under this Agreement, then Arrow Acquisition shall be entitled to offset such amounts from amounts due and payable under the Note. If a dispute arises as to whether or not a valid claim for indemnification hereunder exists, the parties hereto agree that such dispute shall be resolved pursuant to the expedited procedures of the commercial arbitration rules of the American Arbitration Association regardless of the amount in controversy, with each party to bear its own arbitration costs and expenses. The parties stipulate that the hearing locale for any such arbitration proceeding will be Dallas, Texas. Judgment upon the award rendered as a result of such arbitration may be entered in any court having jurisdiction thereof. The parties further stipulate that the provisions hereof shall be a complete defense to any suit, action or proceeding instituted in any federal, state or local court or before any administrative tribunal with respect to any controversy or dispute arising o ...