ESCROW AGREEMENT
by and among
GENOME DX THERAPEUTICS INC.
a Delaware corporation
("Seller")
MERIDIAN PRECISION DIAGNOSTICS, INC.
a Delaware corporation
("Buyer")
and
Ashgrove Equity Partners ESCROW SERVICES, INC.
a California corporation
("Escrow Agent")
Dated as of May 11, 2023
Effective as of August 8, 2023 (the "Closing Date")
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ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of May 11, 2023, to be effective as of August 8, 2023 (the "Closing Date"), by and among:
(i) Genome Dx Therapeutics Inc., a Delaware corporation, with its principal offices located at 10250 Science Center Drive, Suite 600, San Diego, California 92121 (the "Seller" or "GDT");
(ii) Meridian Precision Diagnostics, Inc., a Delaware corporation, with its principal offices located at 2400 Meridian Parkway, Suite 300, Durham, North Carolina 27713 (the "Buyer" or "Meridian"); and
(iii) Ashgrove Equity Partners Escrow Services, Inc., a California corporation, with its offices located at 101 California Street, Suite 1250, San Francisco, California 94111 (the "Escrow Agent").
Seller, Buyer, and Escrow Agent are sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Seller and Buyer have entered into that certain Asset Purchase Agreement, dated as of May 11, 2023 (as may be amended, supplemented, or otherwise modified from time to time, the "APA"), pursuant to which Seller has agreed to sell, convey, assign, transfer, and deliver to Buyer, and Buyer has agreed to purchase and acquire from Seller, substantially all of the assets, properties, and rights related to Seller's OncuPath™ companion diagnostics assay line (collectively, the "OncuPath Business"), for aggregate consideration of One Hundred Forty Million Dollars ($140,000,000) (the "Total Consideration");
WHEREAS, the APA provides that Fourteen Million Dollars ($14,000,000) of the closing cash payment to be paid by Buyer to Seller at the Closing (representing ten percent (10%) of the Total Consideration) shall be deposited into an escrow account to secure Seller's indemnification obligations under Article IX of the APA (the "Escrow Amount"), and the remaining One Hundred Twelve Million Dollars ($112,000,000) of the aggregate closing cash payment of One Hundred Twenty-Six Million Dollars ($126,000,000) shall be paid directly to Seller at the Closing;
WHEREAS, the APA provides for the following limitations on Seller's indemnification obligations: (a) an aggregate indemnification cap of Twenty-Eight Million Dollars ($28,000,000), representing twenty percent (20%) of the Total Consideration (the "Indemnification Cap"); (b) a tipping basket in the aggregate amount of One Million Four Hundred Thousand Dollars ($1,400,000) (the "Basket"), such that no indemnification shall be payable unless and until the aggregate amount of all qualifying claims (each exceeding the De Minimis Threshold) equals or exceeds the Basket amount, at which point Buyer shall be entitled to indemnification from the first dollar of all qualifying Losses; (c) a de minimis threshold of Seventy-Five Thousand Dollars ($75,000) per individual claim (the "De Minimis Threshold"); and (d) an eighteen (18)-month survival period for general representations and warranties, commencing on August 8, 2023 and expiring on February 8, 2025 (the "Survival Period"), with Fundamental Representations surviving for sixty (60) months from the Closing Date (through August 8, 2028);
WHEREAS, the Parties desire to establish the terms and conditions governing the escrow arrangement contemplated by the APA, including the deposit of the Escrow Amount, the investment of the Escrow Fund, the procedures for making and resolving indemnification claims, and the mechanics for releasing escrow funds to the appropriate party; and
WHEREAS, Ashgrove Equity Partners Escrow Services, Inc. has agreed to act as the Escrow Agent upon the terms and conditions set forth herein and to hold, invest, and disburse the Escrow Fund in accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE 1 — DEFINITIONS
Section 1.1 Definitions.
As used in this Agreement, the following capitalized terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the APA.
"Accepted Claim" has the meaning set forth in Section 4.2(a).
"APA" means the Asset Purchase Agreement, dated as of May 11, 2023, by and between Seller and Buyer, as may be amended, supplemented, or otherwise modified from time to time in accordance with its terms, pursuant to which Seller has agreed to sell, and Buyer has agreed to purchase, substantially all of the assets related to the OncuPath Business.
"Basket" means the aggregate deductible amount of One Million Four Hundred Thousand Dollars ($1,400,000), as set forth in Article IX of the APA, structured as a tipping basket such that once the aggregate amount of all qualifying claims (each exceeding the De Minimis Threshold) equals or exceeds the Basket, Buyer shall be entitled to indemnification from the first dollar of all qualifying Losses.
"Business Day" means any day other than a Saturday, Sunday, or any other day on which commercial banks in New York City, New York or San Francisco, California are authorized or required by law or executive order to close.
"Buyer" means Meridian Precision Diagnostics, Inc., a Delaware corporation, with its principal offices located at 2400 Meridian Parkway, Suite 300, Durham, North Carolina 27713, and its successors and permitted assigns.
"Claim Notice" has the meaning set forth in Section 4.1.
"Claimed Amount" means the aggregate dollar amount of Losses claimed in a Claim Notice, as specified therein.
"Closing" means the closing of the transactions contemplated by the APA, as described therein.
"Closing Date" means August 8, 2023, the date on which the Closing occurs under the APA.
"De Minimis Threshold" means Seventy-Five Thousand Dollars ($75,000) per individual claim, as set forth in the APA, below which individual claims shall not be counted toward the Basket or qualify for indemnification from the Escrow Fund.
"Disputed Amount" has the meaning set forth in Section 4.4(b).
"Disputed Claim" has the meaning set forth in Section 4.2(b).
"Earnout" means up to Fourteen Million Dollars ($14,000,000) in milestone-based contingent payments payable to Seller under the APA, as more fully described therein. For the avoidance of doubt, the Escrow Fund is established to secure Seller's indemnification obligations under the APA and does not secure, and is not available for satisfaction of, any Earnout obligations of Buyer.
"Escrow Account" means the segregated trust account established and maintained by the Escrow Agent for purposes of this Agreement, designated as Account No. 8841-7023-5500, at Ashgrove Equity Partners Escrow Services, Inc., 101 California Street, Suite 1250, San Francisco, California 94111.
"Escrow Agent" means Ashgrove Equity Partners Escrow Services, Inc., a California corporation, with its offices at 101 California Street, Suite 1250, San Francisco, California 94111, and any successor escrow agent appointed in accordance with Section 7.4 hereof.
"Escrow Amount" or "Escrow Deposit" means the sum of Fourteen Million Dollars ($14,000,000), representing ten percent (10%) of the Total Consideration, to be deposited into the Escrow Account on the Closing Date in accordance with Section 2.2.
"Escrow Fund" means the Escrow Amount, together with all interest, dividends, capital gains, and other income earned on, or accruing to, the Escrow Amount from time to time, net of any amounts disbursed from the Escrow Account in accordance with the terms of this Agreement.
"Final Release Date" means February 8, 2025, the date that is eighteen (18) months after the Closing Date, corresponding to the expiration of the Survival Period for general representations and warranties under the APA.
"Final Release Holdback" has the meaning set forth in Section 5.2.
"First Release Date" means August 8, 2024, the date that is twelve (12) months after the Closing Date.
"First Release Holdback" has the meaning set forth in Section 5.1.
"Fundamental Representations" means those representations and warranties of Seller designated as "Fundamental Representations" under the APA, which survive for a period of sixty (60) months from the Closing Date (i.e., through August 8, 2028), and which are not subject to the Indemnification Cap or the Basket but are subject to a separate aggregate liability limit equal to the Total Consideration.
"Indemnification Cap" means Twenty-Eight Million Dollars ($28,000,000), representing twenty percent (20%) of the Total Consideration of One Hundred Forty Million Dollars ($140,000,000), which constitutes the maximum aggregate liability of Seller for indemnification obligations under Article IX of the APA with respect to general representations and warranties (exclusive of Fundamental Representations).
"Joint Written Instruction" has the meaning set forth in Section 3.2.
"Losses" has the meaning ascribed to such term in the APA and generally includes all losses, damages, liabilities, costs, expenses (including reasonable attorneys' fees and costs of investigation), judgments, fines, penalties, charges, and amounts paid in settlement.
"OncuPath Business" means Seller's OncuPath™ companion diagnostics assay line, together with all related assets, properties, rights, and contracts, as more fully described in the APA.
"Pending Claims" means all claims for which a Claim Notice has been delivered in accordance with Section 4.1 but that have not yet been finally resolved by Accepted Claim, deemed acceptance, Joint Written Instruction, settlement, or final, non-appealable order of a court of competent jurisdiction, as of the applicable measurement date.
"Permitted Investments" has the meaning set forth in Section 3.1.
"Response Notice" has the meaning set forth in Section 4.2.
"Seller" means Genome Dx Therapeutics Inc., a Delaware corporation, with its principal offices located at 10250 Science Center Drive, Suite 600, San Diego, California 92121, and its successors and permitted assigns.
"Survival Period" means the period of eighteen (18) months commencing on the Closing Date (August 8, 2023) and ending on the Final Release Date (February 8, 2025), during which period general representations and warranties under the APA survive and may serve as the basis for indemnification claims.
"Total Consideration" means One Hundred Forty Million Dollars ($140,000,000), being the aggregate consideration payable by Buyer to Seller for the OncuPath Business under the APA, inclusive of the closing cash payment and any Earnout amounts.
Section 1.2 Interpretation.
(a) All references herein to "Articles," "Sections," and "Exhibits" refer to Articles, Sections, and Exhibits of this Agreement unless otherwise specified.
(b) The words "hereof," "herein," "hereto," "hereby," and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.
(c) The words "include," "includes," and "including" shall be deemed to be followed by the words "without limitation."
(d) All references to dollar amounts herein are to lawful currency of the United States of America.
(e) The headings and captions of the Articles and Sections contained in this Agreement are inserted for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or in any way affect the meaning or construction of this Agreement.
(f) Wherever the context so requires, the singular number shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.
(g) Any capitalized term used in this Agreement that is not defined herein shall have the meaning ascribed to such term in the APA.
(h) In the event that any term defined herein conflicts with the definition of such term in the APA, the definition in the APA shall control for purposes of interpreting the indemnification obligations and related provisions of the APA, except with respect to the procedural and operational provisions of this Agreement, which shall be governed by the definitions herein.
ARTICLE 2 — ESTABLISHMENT OF ESCROW; DEPOSIT
Section 2.1 Establishment of Escrow Account.
The Escrow Agent hereby agrees to establish and maintain a segregated escrow account, designated as Account No. 8841-7023-5500, at Ashgrove Equity Partners Escrow Services, Inc.'s offices located at 101 California Street, Suite 1250, San Francisco, California 94111 (the "Escrow Account"). The Escrow Account shall be established in the name of "Ashgrove Equity Partners Escrow Services, Inc., as Escrow Agent for the benefit of Genome Dx Therapeutics Inc. and Meridian Precision Diagnostics, Inc." The Escrow Agent shall maintain the Escrow Account as a segregated account, separate and apart from the Escrow Agent's own funds and the funds of any other person or entity. The Escrow Agent shall not commingle the Escrow Fund with any other funds held by the Escrow Agent in any capacity.
Section 2.2 Deposit of Escrow Amount.
On the Closing Date (August 8, 2023), Buyer shall deposit, or cause to be deposited, the Escrow Amount of Fourteen Million Dollars ($14,000,000) by wire transfer of immediately available funds into the Escrow Account in accordance with the wire transfer instructions set forth on Exhibit A attached hereto and incorporated herein by reference. The Escrow Amount constitutes a portion of the aggregate closing cash payment of One Hundred Twenty-Six Million Dollars ($126,000,000) payable by Buyer under the APA, of which One Hundred Twelve Million Dollars ($112,000,000) shall be paid directly to Seller at the Closing and Fourteen Million Dollars ($14,000,000) shall be deposited into the Escrow Account as provided herein. The deposit of the Escrow Amount into the Escrow Account shall satisfy Buyer's obligation under the APA to fund the escrow contemplated thereby. For the avoidance of doubt, the Escrow Amount does not include any portion of the Earnout, which is a separate contingent obligation of Buyer under the APA.
Section 2.3 Confirmation of Receipt.
The Escrow Agent shall promptly (and in no event later than one (1) Business Day after receipt) confirm receipt of the Escrow Amount in writing (which may be by email) to both Seller and Buyer upon receipt of the wire transfer into the Escrow Account. Such confirmation shall specify the date and time of receipt and the amount received. If the Escrow Agent does not receive the full Escrow Amount on the Closing Date, the Escrow Agent shall promptly notify both Seller and Buyer in writing, specifying the amount actually received, and the Parties shall cooperate to cause the full Escrow Amount to be deposited as soon as practicable.
Section 2.4 Title to Escrow Fund.
The Escrow Fund shall be the property of Buyer until released to Seller in accordance with the terms of this Agreement; provided, however, that upon release to Seller pursuant to Article 5 or otherwise in accordance with this Agreement, such released amounts shall immediately become the property of Seller. Notwithstanding the foregoing, for United States federal, state, and local income tax purposes, Seller shall be treated as the owner of the Escrow Fund and all income earned thereon, as more fully described in Article 6 of this Agreement. Neither Seller nor Buyer shall grant, create, or permit to exist any lien, encumbrance, security interest, or other claim against the Escrow Fund, other than as expressly provided in this Agreement (including the Escrow Agent's lien set forth in Section 9.2).
ARTICLE 3 — INVESTMENT OF ESCROW FUND
Section 3.1 Permitted Investments.
The Escrow Agent shall invest and reinvest the Escrow Fund, including any income earned thereon, in one or more of the following categories of investments (collectively, "Permitted Investments"), as directed by Joint Written Instruction of Seller and Buyer (or, in the absence of such direction, as provided in Section 3.2):
(a) Direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America, having a maturity of one (1) year or less from the date of acquisition;
(b) Certificates of deposit, time deposits, or bankers' acceptances issued by any commercial bank organized under the laws of the United States of America or any state thereof, having combined capital and surplus of not less than Five Hundred Million Dollars ($500,000,000) and the deposits of which are insured by the Federal Deposit Insurance Corporation, with maturities of not more than one hundred eighty (180) days from the date of acquisition;
(c) Money market mutual funds that (i) invest exclusively in obligations described in clause (a) above or in repurchase agreements secured by such obligations, and (ii) are rated at least "AAAm" (or an equivalent rating) by Standard & Pelvoran Ratings Group, a division of S&P Global Inc., or an equivalent rating by Moody's Investors Service, Inc. or Fitch Ratings, Inc., or any other nationally recognized statistical rating organization; and
(d) Such other investments as Seller and Buyer may jointly direct in writing, provided that such investments are acceptable to the Escrow Agent in its sole and reasonable discretion.
Section 3.2 Joint Written Instruction.
For purposes of this Agreement, a "Joint Written Instruction" shall mean a written instruction signed by an authorized representative of both Seller and Buyer, directing the Escrow Agent to take a specified action with respect to the Escrow Fund, including with respect to investment direction, disbursement, or any other matter contemplated hereby. In the absence of a Joint Written Instruction with respect to the investment of the Escrow Fund, the Escrow Agent shall invest and reinvest the Escrow Fund in one or more money market mutual funds of the type described in Section 3.1(c) as selected by the Escrow Agent in its reasonable discretion. The Escrow Agent shall have no obligation to invest or reinvest the Escrow Fund in the absence of Joint Written Instruction, except as provided in the preceding sentence. The Escrow Agent shall not be responsible for any loss resulting from the liquidation of any investment prior to its maturity in order to make a disbursement required under this Agreement.
Section 3.3 Income and Earnings.
All interest, dividends, capital gains, and other income earned on the Escrow Fund (collectively, "Escrow Earnings") shall be added to and become part of the Escrow Fund. Escrow Earnings shall be subject to release and distribution on the same terms and in the same proportions as the principal Escrow Amount. For the avoidance of doubt, all references in this Agreement to the "Escrow Fund" shall include Escrow Earnings unless the context requires otherwise.
Section 3.4 Risk of Loss.
Neither the Escrow Agent nor any Party shall be liable for any losses, declines in value, or other diminution in the Escrow Fund resulting from Permitted Investments made in accordance with this Article 3, including any losses arising from fluctuations in the market value of any such investments, absent the Escrow Agent's gross negligence or willful misconduct. The Escrow Agent shall not be deemed to have any duty to maximize the return on the Escrow Fund or to recommend any particular investment strategy. The Parties acknowledge and agree that the Escrow Agent is not providing investment advice with respect to the Escrow Fund and that the selection of investments pursuant to Joint Written Instruction is the sole responsibility of Seller and Buyer.
ARTICLE 4 — CLAIM PROCEDURES
Section 4.1 Claim Notice.
If Buyer believes in good faith that it is entitled to indemnification from the Escrow Fund pursuant to Article IX of the APA, Buyer shall deliver a written notice (a "Claim Notice") to the Escrow Agent and to Seller, which Claim Notice shall specify each of the following:
(a) A description of the nature and factual basis of the claim in reasonable detail, including the events, circumstances, or conditions giving rise to the claim;
(b) Identification of the specific representations, warranties, covenants, or agreements under the APA that Buyer alleges have been breached or with respect to which indemnification is sought;
(c) The aggregate dollar amount of Losses claimed by Buyer in connection with such claim (the "Claimed Amount"), which Claimed Amount must equal or exceed the De Minimis Threshold of Seventy-Five Thousand Dollars ($75,000) per individual claim (and any individual claim with a Claimed Amount below the De Minimis Threshold shall not constitute a valid Claim Notice and shall not be counted toward the Basket); provided that Buyer may state that the Claimed Amount is its good faith estimate and is subject to change if the amount of Losses cannot be reasonably determined at the time of the Claim Notice; and
(d) Copies of any supporting documentation reasonably available to Buyer at the time of delivery of the Claim Notice, including contracts, correspondence, invoices, reports, and other evidence supporting the claim.
A Claim Notice may relate to one or more claims, provided that each individual claim is separately identified and each individual Claimed Amount is separately stated. Delivery of a Claim Notice to the Escrow Agent shall not, by itself, require the Escrow Agent to take any action other than to acknowledge receipt and to retain amounts in the Escrow Fund as provided in this Article 4.
Section 4.2 Response Period.
Seller shall have thirty (30) Business Days following receipt of a Claim Notice (the "Response Period") to deliver to the Escrow Agent and to Buyer a written response (a "Response Notice"). The Response Notice shall indicate either:
(a) That Seller accepts the claim in whole or in part (an "Accepted Claim"), specifying the dollar amount accepted by Seller and consenting to disbursement of such accepted amount from the Escrow Fund to Buyer (or as Buyer may direct); or
(b) That Seller disputes the claim in whole or in part (a "Disputed Claim"), setting forth in reasonable detail the basis for Seller's objection, including the factual and legal grounds for the dispute and, if the dispute is partial, the dollar amount that Seller accepts (if any) and the dollar amount that Seller disputes.
If Seller fails to deliver a Response Notice to the Escrow Agent and Buyer within the thirty (30) Business Day Response Period, Seller shall be deemed to have accepted the claim in its entirety as set forth in the Claim Notice, and such claim shall be treated as an Accepted Claim for all purposes of this Agreement.
Section 4.3 Disbursement on Accepted Claims.
Upon receipt of a Response Notice constituting an Accepted Claim (whether in whole or in part) or upon the deemed acceptance of a claim as provided in Section 4.2, the Escrow Agent shall promptly (and in no event later than five (5) Business Days after receipt of the Response Notice or the expiration of the Response Period, as applicable) disburse the accepted amount (or, in the case of deemed acceptance, the full Claimed Amount) from the Escrow Fund to Buyer by wire transfer of immediately available funds to such account as Buyer may designate in writing to the Escrow Agent. In the case of a partial acceptance, the Escrow Agent shall disburse only the accepted portion, and the remaining disputed portion shall be treated as a Disputed Claim in accordance with Section 4.4.
Section 4.4 Disputed Claims; Resolution.
(a) Resolution Process. If Seller disputes a claim in whole or in part in accordance with Section 4.2(b), the Disputed Claim shall be resolved in accordance with the dispute resolution provisions set forth in the APA, which may include good faith negotiation between the Parties, non-binding mediation, and, if necessary, litigation before a court of competent jurisdiction. The Escrow Agent shall have no obligation to participate in any such negotiation, mediation, or litigation, and shall not be required to make any determination as to the merits of any claim or dispute.
(b) Retention of Disputed Amount. The Escrow Agent shall retain in the Escrow Account an amount equal to the Claimed Amount of any Disputed Claim that remains unresolved (the "Disputed Amount") until the earlier of: (i) receipt by the Escrow Agent of a Joint Written Instruction from Seller and Buyer directing the disbursement of the Disputed Amount (in whole or in part) to either Seller or Buyer (or both, as specified in such Joint Written Instruction); or (ii) receipt by the Escrow Agent of a certified copy of a final, non-appealable order, judgment, or decree of a court of competent jurisdiction directing the disbursement of the Disputed Amount (in whole or in part) to either Seller or Buyer (or both, as specified in such order). Upon receipt of a Joint Written Instruction or final court order, the Escrow Agent shall disburse the Disputed Amount in accordance with such instruction or order within five (5) Business Days.
(c) No Duty to Determine Merits. The Escrow Agent shall have no obligation or responsibility to determine the merits, validity, or sufficiency of any Claim Notice, Response Notice, or any other claim, dispute, instruction, or communication received by the Escrow Agent in connection with this Agreement. The Escrow Agent shall be entitled to rely exclusively on Joint Written Instructions and final, non-appealable court orders in making disbursements from the Escrow Fund in connection with Disputed Claims.
Section 4.5 Aggregate Basket Requirement.
No disbursement from the Escrow Fund shall be made to Buyer unless and until the aggregate amount of all claims for which valid Claim Notices have been delivered (each of which individually exceeds the De Minimis Threshold of $75,000) equals or exceeds the Basket amount of One Million Four Hundred Thousand Dollars ($1,400,000). In accordance with the tipping basket structure established in the APA, once the aggregate amount of all qualifying claims equals or exceeds the Basket, Buyer shall be entitled to indemnification and recovery from the Escrow Fund from the first dollar of all qualifying Losses (and not merely the amount in excess of the Basket). The Escrow Agent shall rely solely on Joint Written Instruction from Seller and Buyer, or a final, non-appealable order of a court of competent jurisdiction, to confirm whether the Basket threshold has been satisfied with respect to any particular claim or series of claims. The Escrow Agent shall have no independent obligation to track, calculate, or verify whether the aggregate amount of claims has reached the Basket threshold.
Section 4.6 Indemnification Cap.
Total disbursements from the Escrow Fund to Buyer, together with all other indemnification payments made to Buyer under Article IX of the APA (whether from the Escrow Fund or otherwise), shall not exceed the Indemnification Cap of Twenty-Eight Million Dollars ($28,000,000) (representing twenty percent (20%) of the Total Consideration of One Hundred Forty Million Dollars ($140,000,000)); provided, however, that claims based on Fundamental Representations shall not be subject to the Indemnification Cap or the Basket, but shall be subject to a separate aggregate liability limit equal to the Total Consideration of One Hundred Forty Million Dollars ($140,000,000) as set forth in the APA. The Escrow Agent shall have no independent obligation to track or monitor compliance with the Indemnification Cap and shall rely exclusively on Joint Written Instruction or final, non-appealable court order in making any disbursement from the Escrow Fund.
ARTICLE 5 — RELEASE OF ESCROW FUND
Section 5.1 First Scheduled Release (12 Months Post-Closing).
On August 8, 2024 (the "First Release Date"), the Escrow Agent shall release to Seller, by wire transfer of immediately available funds to the account designated by Seller in Exhibit B attached hereto (or such other account as Seller may designate by written notice to the Escrow Agent at least five (5) Business Days prior to the First Release Date), an amount equal to fifty percent (50%) of the then-remaining Escrow Fund, net of the following:
(a) The aggregate Claimed Amounts of all Pending Claims for which a Claim Notice has been delivered on or before the First Release Date and that remain unresolved as of such date (whether such Pending Claims are Accepted Claims awaiting disbursement, Disputed Claims, or claims for which the Response Period has not yet expired); the aggregate amount of such Pending Claims shall continue to be held in the Escrow Account (the "First Release Holdback").
For purposes of calculating the release amount under this Section 5.1, the following illustrative examples are provided:
Example 1: If no Pending Claims exist as of August 8, 2024, and the Escrow Fund (including accumulated Escrow Earnings) totals $14,350,000, the Escrow Agent shall release fifty percent (50%) of the entire Escrow Fund, or $7,175,000, to Seller.
Example 2: If Pending Claims with aggregate Claimed Amounts totaling $2,000,000 exist as of August 8, 2024, and the Escrow Fund (including accumulated Escrow Earnings) totals $14,350,000, the Escrow Agent shall first set aside the First Release Holdback of $2,000,000, and then release fifty percent (50%) of the remaining balance of $12,350,000 (i.e., $6,175,000) to Seller. The Escrow Agent shall continue to hold the First Release Holdback of $2,000,000, plus the remaining $6,175,000, in the Escrow Account.
The release contemplated by this Section 5.1 shall be made by wire transfer of immediately available funds within five (5) Business Days following the First Release Date (or, if the First Release Date is not a Business Day, the next succeeding Business Day). At least ten (10) Business Days prior to the First Release Date, Buyer shall deliver to the Escrow Agent a written certification (which may be delivered by email) setting forth a list of all Pending Claims as of such date and the aggregate Claimed Amounts thereof. If Buyer fails to deliver such certification within the time period specified, the Escrow Agent shall be entitled to rely on the Claim Notices and Response Notices in its files, and Seller and Buyer shall cooperate to provide a Joint Written Instruction directing the Escrow Agent as to the appropriate release amount.
Section 5.2 Final Release (Survival Period Expiration).
On February 8, 2025 (the "Final Release Date"), which corresponds to the expiration of the eighteen (18)-month Survival Period for general representations and warranties under the APA, the Escrow Agent shall release to Seller, by wire transfer of immediately available funds to the account designated on Exhibit B (or such other account as Seller may designate by written notice to the Escrow Agent at least five (5) Business Days prior to the Final Release Date), the entire remaining balance of the Escrow Fund, net of the following:
(a) The aggregate Claimed Amounts of all Pending Claims for which a Claim Notice was delivered on or before the Final Release Date and that remain unresolved as of such date (whether such Pending Claims are Accepted Claims awaiting disbursement, Disputed Claims, or claims for which the Response Period has not yet expired); the aggregate amount of such Pending Claims shall continue to be held in the Escrow Account (the "Final Release Holdback").
Any amounts constituting the Final Release Holdback shall continue to be held in the Escrow Account and shall be released as such Pending Claims are resolved, as follows:
(i) To the extent a Pending Claim is ultimately accepted by Seller (whether by Accepted Claim, deemed acceptance, or settlement), or is adjudicated by a final, non-appealable order of a court of competent jurisdiction in Buyer's favor, the Escrow Agent shall disburse to Buyer (or as Buyer may direct) the amount accepted, settled, or adjudicated, within five (5) Business Days of the Escrow Agent's receipt of a Joint Written Instruction or certified copy of such court order; and
(ii) To the extent a Pending Claim is ultimately rejected, withdrawn, or dismissed, or is adjudicated by a final, non-appealable order of a court of competent jurisdiction in Seller's favor, the Escrow Agent shall release to Seller the corresponding portion of the Final Release Holdback, within five (5) Business Days of the Escrow Agent's receipt of a Joint Written Instruction or certified copy of such court order.
At least ten (10) Business Days prior to the Final Release Date, Buyer shall deliver to the Escrow Agent a written certification (which may be delivered by email) setting forth a list of all Pending Claims as of such date and the aggregate Claimed Amounts thereof. If Buyer fails to deliver such certification within the time period specified, the provisions of the last sentence of Section 5.1 shall apply mutatis mutandis.
Section 5.3 Fundamental Representations Claims.
Notwithstanding anything to the contrary in Section 5.2 or elsewhere in this Agreement, the Escrow Fund shall not serve as the exclusive source of recovery for indemnification claims based on breaches of Fundamental Representations, which survive for sixty (60) months from the Closing Date (i.e., through August 8, 2028). To the extent any claim based on a Fundamental Representation is submitted as a Pending Claim by delivery of a valid Claim Notice on or before the Final Release Date, the Claimed Amount of such Pending Claim shall be retained in the Escrow Account as part of the Final Release Holdback in accordance with Section 5.2, and shall be disbursed in accordance with the resolution mechanics set forth therein. Any indemnification claims arising after the Final Release Date that are based on breaches of Fundamental Representations shall be pursued directly against Seller under Article IX of the APA, and not from the Escrow Fund, unless amounts remain in the Escrow Account at such time on account of previously Pending Claims (in which case such amounts shall be available for satisfaction of Fundamental Representation claims only to the extent not already reserved for existing Pending Claims). Nothing in this Agreement shall be construed to limit Buyer's rights under the APA with respect to Fundamental Representations.
Section 5.4 Termination of Escrow.
This Agreement shall terminate upon the later of (a) the Final Release Date and (b) the final resolution and disbursement of all Pending Claims and the complete distribution of the entire Escrow Fund (including all Escrow Earnings) in accordance with the terms hereof. Upon termination of this Agreement, the Escrow Agent's duties, obligations, and responsibilities hereunder shall cease, subject to the survival provisions set forth in Section 12.11. Promptly following termination, the Escrow Agent shall deliver a final written accounting of the Escrow Fund to Seller and Buyer, showing all deposits, investments, earnings, disbursements, fees, expenses, and the final balance.
ARTICLE 6 — TAX MATTERS
Section 6.1 Tax Treatment.
For United States federal, state, and local income tax purposes, the Escrow Fund (including all investment income, interest, dividends, capital gains, and other earnings accruing thereon) shall be treated as owned by Seller from and after the Closing Date. Seller shall report all income earned on the Escrow Fund on its federal, state, and local income tax returns for each taxable period during which such income is earned, and Seller shall be solely responsible for the payment of all taxes attributable to such income. The Parties agree not to take any position inconsistent with this Section 6.1 on any tax return or in any audit, examination, or other proceeding with respect to taxes, unless otherwise required by a change in applicable law or a final determination by a taxing authority.
Section 6.2 Tax Reporting.
The Escrow Agent shall report all income earned on the Escrow Fund under Seller's name and taxpayer identification number (Employer Identification Number: 47-3892061). The Escrow Agent shall prepare and deliver to Seller, within the time periods required by applicable law, all applicable tax information statements, including IRS Form 1099 (or any successor or equivalent form), reflecting the income earned on the Escrow Fund during each calendar year (or portion thereof) during which the Escrow Fund remains in existence. The Escrow Agent shall provide copies of such forms to Buyer upon Buyer's written request.
Section 6.3 Withholding.
The Escrow Agent shall be entitled to deduct and withhold from any amount payable or distributable pursuant to this Agreement such amounts as the Escrow Agent may be required to deduct and withhold under any provision of federal, state, local, or foreign tax law. To the extent that amounts are so withheld and paid over to the applicable taxing authority, such amounts shall be treated for all purposes of this Agreement as having been distributed to the Party on whose behalf such withholding was made. If the Escrow Agent determines that any withholding is required, the Escrow Agent shall promptly notify the affected Party in writing and shall cooperate with such Party to reduce or eliminate any such withholding to the extent permitted by applicable law. Each of Seller and Buyer shall provide to the Escrow Agent, upon request, a properly completed and executed IRS Form W-9 (or applicable substitute or successor form) certifying such Party's taxpayer identification number and exemption from backup withholding.
Section 6.4 Tax Indemnity by Seller.
Seller shall indemnify, defend, and hold harmless the Escrow Agent from and against any and all taxes, penalties, interest, additions to tax, and related costs and expenses (including reasonable attorneys' fees) arising from or related to Seller's failure to report or pay any taxes attributable to income earned on the Escrow Fund as required by applicable law and this Article 6. This indemnity shall survive the termination of this Agreement.
ARTICLE 7 — ESCROW AGENT PROVISIONS
Section 7.1 Duties and Responsibilities.
The Escrow Agent's duties and responsibilities under this Agreement are limited solely and exclusively to those expressly set forth in this Agreement. The Escrow Agent shall act as a stakeholder only and shall have no fiduciary duties or obligations to any Party beyond those expressly specified herein. Without limiting the generality of the foregoing:
(a) The Escrow Agent shall act upon Joint Written Instructions, Claim Notices, Response Notices, or unilateral instructions from either Party only as and to the extent specifically permitted or required under this Agreement;
(b) The Escrow Agent shall have no obligation or duty to inquire into, determine, or verify the sufficiency, accuracy, validity, legality, or propriety of any instruction, notice, claim, certification, or other document or communication received by the Escrow Agent in connection with this Agreement;
(c) The Escrow Agent shall have no duty to monitor the performance of the APA or any Party's compliance therewith, and shall have no liability with respect to the APA or any acts or omissions of any Party thereunder;
(d) The Escrow Agent shall not be deemed to have notice of any default, event, or condition under this Agreement or the APA unless and until it has received written notice thereof from a Party in accordance with Article 11; and
(e) The Escrow Agent shall not be required to expend or risk any of its own funds or otherwise incur any liability in the performance of its duties hereunder if the Escrow Agent has reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured.
Section 7.2 Standard of Care.
The Escrow Agent shall perform its duties hereunder with reasonable care consistent with the standards applicable to professional escrow agents. The Escrow Agent shall not be liable for any action taken or omitted to be taken by it in good faith and in accordance with the terms of this Agreement, except to the extent that such action or omission constitutes gross negligence or willful misconduct on the part of the Escrow Agent. In no event shall the Escrow Agent be liable for any indirect, incidental, consequential, special, punitive, or exemplary damages of any kind, regardless of the form of action and regardless of whether such damages were foreseeable.
Section 7.3 Reliance on Documents.
The Escrow Agent may rely upon, and shall be fully protected in acting or refraining from acting upon, any notice, instruction, request, consent, certificate, direction, agreement, court order, or other document or communication that it believes in good faith to be genuine and to have been signed, presented, or transmitted by the proper party or parties. The Escrow Agent shall have no duty to investigate or verify the authenticity, accuracy, or completeness of any such document or communication. The Escrow Agent may consult with legal counsel of its own selection (including in-house counsel) with respect to any question arising under or in connection with this Agreement, and the Escrow Agent shall not be liable for any action taken or omitted in good faith upon the advice of such counsel.
Section 7.4 Resignation or Removal.
(a) Resignation. The Escrow Agent may resign at any time upon thirty (30) days' prior written notice to Seller and Buyer. Such resignation shall take effect upon the appointment of a successor escrow agent and the transfer of the Escrow Fund to such successor, or, if no successor has been appointed within such thirty (30)-day period, upon the expiration of such period.
(b) Removal. The Escrow Agent may be removed by Joint Written Instruction of Seller and Buyer upon thirty (30) days' prior written notice to the Escrow Agent. Such removal shall take effect upon the appointment of a successor escrow agent and the transfer of the Escrow Fund to such successor.
(c) Appointment of Successor. Upon any resignation or removal of the Escrow Agent, Seller and Buyer shall, within thirty (30) days of such resignation or removal, jointly appoint a successor escrow agent reasonably acceptable to both Seller and Buyer. If Seller and Buyer are unable to agree upon a successor escrow agent within such thirty (30)-day period, the Escrow Agent may petition any court of competent jurisdiction for the appointment of a successor escrow agent, or may deposit the Escrow Fund with such court pending the appointment of a successor, and in either case shall be discharged from any further duties and obligations under this Agreement.
(d) Transfer of Escrow Fund. Upon appointment of a successor escrow agent, the resigning or removed Escrow Agent shall promptly transfer and deliver the Escrow Fund (together with all records and documentation relating thereto) to the successor escrow agent, and the successor escrow agent shall thereupon become the "Escrow Agent" for all purposes of this Agreement.
(e) Designated Officer. The designated officer of the Escrow Agent for purposes of this Agreement is Samantha Koh, Vice President, Ashgrove Equity Partners Escrow Services, Inc. The Escrow Agent may designate a replacement officer by written notice to Seller and Buyer.
Section 7.5 Conflicting Instructions.
If, at any time, the Escrow Agent receives instructions, claims, demands, or other communications from Seller and Buyer that, in the Escrow Agent's reasonable judgment, are conflicting or inconsistent with each other or with the terms of this Agreement, the Escrow Agent may refrain from taking any action (other than maintaining the Escrow Fund in accordance with this Agreement) until it receives (a) a Joint Written Instruction from Seller and Buyer, (b) a final, non-appealable order of a court of competent jurisdiction, or (c) such other resolution as may be satisfactory to the Escrow Agent. The Escrow Agent shall not be liable for any delay in disbursement or other action resulting from the receipt of conflicting instructions or the Escrow Agent's election to refrain from acting pending resolution thereof.
Section 7.6 Interpleader.
If any dispute arises with respect to the Escrow Fund, the interpretation of this Agreement, or the rights, obligations, or duties of the Escrow Agent hereunder, or if the Escrow Agent receives conflicting instructions that cannot be resolved in accordance with Section 7.5, the Escrow Agent may, at any time, in its sole discretion, commence an interpleader action or similar proceeding in any court of competent jurisdiction to resolve such dispute. Upon the filing of such action and the deposit of the Escrow Fund with such court, the Escrow Agent shall be fully released and discharged from all obligations and liability under this Agreement (except with respect to any accrued and unpaid fees, expenses, or indemnification obligations owing to the Escrow Agent). All costs and expenses of such interpleader action, including reasonable attorneys' fees, shall be borne equally by Seller and Buyer.
ARTICLE 8 — FEES AND EXPENSES OF ESCROW AGENT
Section 8.1 Escrow Agent Fees.
The fees payable to the Escrow Agent for the performance of its services under this Agreement shall be as set forth in the fee schedule attached as Exhibit C hereto and incorporated herein by reference. Such fees shall be paid fifty percent (50%) by Seller and fifty percent (50%) by Buyer. The initial setup and acceptance fee shall be due and payable upon execution of this Agreement, and annual administration fees shall be payable in advance on each anniversary of the Closing Date during the term of this Agreement. The Escrow Agent's fees shall not be deducted from the Escrow Fund except as provided in Section 8.3 or upon receipt of a Joint Written Instruction authorizing such deduction.
Section 8.2 Expense Reimbursement.
Seller and Buyer shall reimburse the Escrow Agent for all reasonable and documented out-of-pocket expenses incurred by the Escrow Agent in connection with the performance of its duties under this Agreement, including without limitation postage, courier charges, wire transfer fees, and legal fees and expenses incurred by the Escrow Agent in connection with any dispute, interpleader action, or other proceeding arising hereunder. Such expenses shall be split equally (fifty percent (50%) each) between Seller and Buyer, unless otherwise agreed in writing by Seller and Buyer. The Escrow Agent shall provide reasonable documentation of such expenses upon request by either Seller or Buyer.
Section 8.3 Priority of Payment.
If any fees or expenses payable to the Escrow Agent under this Agreement remain unpaid for more than sixty (60) days after the date of the Escrow Agent's invoice therefor, the Escrow Agent shall be entitled, upon not less than ten (10) days' prior written notice to Seller and Buyer, to deduct the amount of such unpaid fees and expenses from the Escrow Fund. Any amounts so deducted shall be treated for all purposes of this Agreement as having been disbursed from the Escrow Fund, and the remaining Escrow Fund shall be reduced accordingly. The Escrow Agent shall provide an accounting of any such deductions to Seller and Buyer promptly following any such deduction.
ARTICLE 9 — INDEMNIFICATION OF ESCROW AGENT
Section 9.1 Indemnification.
Seller and Buyer shall, jointly and severally, indemnify, defend, and hold harmless the Escrow Agent, and its officers, directors, employees, agents, and representatives (collectively, the "Escrow Agent Indemnitees"), from and against any and all losses, liabilities, claims, actions, suits, proceedings, demands, damages, costs, and expenses (including reasonable attorneys' fees and costs of investigation and litigation) (collectively, "Escrow Agent Losses") arising out of or in connection with the Escrow Agent's acceptance of appointment as, or performance of its duties and obligations as, Escrow Agent hereunder, or otherwise arising out of or relating to this Agreement, except to the extent that such Escrow Agent Losses are caused by or result from the Escrow Agent's own gross negligence or willful misconduct. The obligations of Seller and Buyer under this Section 9.1 shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement. As between Seller and Buyer, any indemnification payments made to the Escrow Agent Indemnitees under this Section 9.1 shall be borne equally by Seller and Buyer, unless otherwise agreed in writing or unless a court of competent jurisdiction determines that such Escrow Agent Losses were primarily caused by the actions or omissions of one Party, in which case such Party shall bear the full amount of such indemnification.
Section 9.2 Lien.
The Escrow Agent shall have a first-priority lien on the Escrow Fund for any and all fees, expenses, and indemnification amounts owed to the Escrow Agent under this Agreement (collectively, "Escrow Agent Obligations"). Such lien shall attach to the Escrow Fund upon the accrual of any Escrow Agent Obligation and shall remain in effect until all Escrow Agent Obligations have been paid in full. The Escrow Agent's lien shall take priority over any claim of Seller or Buyer to the Escrow Fund. The Escrow Agent may exercise its lien rights by deducting amounts owed to it from the Escrow Fund in accordance with Section 8.3 and this Section 9.2, provided that the Escrow Agent shall give Seller and Buyer not less than ten (10) days' prior written notice before exercising any such lien rights.
ARTICLE 10 — REPRESENTATIONS AND WARRANTIES
Section 10.1 Representations and Warranties of Seller.
Seller hereby represents and warrants to each of Buyer and Escrow Agent, as of the date hereof and as of the Closing Date, as follows:
(a) Organization and Good Standing. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with Employer Identification Number 47-3892061.
(b) Power and Authority. Seller has full corporate power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby.
(c) Due Authorization. The execution, delivery, and performance by Seller of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Seller, including approval by the Board of Directors of Seller at a meeting duly held on May 8, 2023. No other corporate proceedings on the part of Seller are necessary to authorize the execution, delivery, or performance of this Agreement.
(d) No Conflicts. The execution, delivery, and performance by Seller of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with the certificate of incorporation, bylaws, or other organizational documents of Seller, (ii) violate or conflict with any law, statute, regulation, order, judgment, or decree applicable to Seller, or (iii) conflict with, result in a breach of, constitute a default under, or require any consent under, any material agreement, contract, instrument, or obligation to which Seller is a party or by which Seller or its properties may be bound.
(e) Enforceability. This Agreement constitutes a legal, valid, and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 10.2 Representations and Warranties of Buyer.
Buyer hereby represents and warrants to each of Seller and Escrow Agent, as of the date hereof and as of the Closing Date, as follows:
(a) Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, with Employer Identification Number 56-4210783.
(b) Power and Authority. Buyer has full corporate power and authority to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby.
(c) Due Authorization. The execution, delivery, and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of Buyer, including approval by the Board of Directors of Buyer at a meeting duly held on May 10, 2023. No other corporate proceedings on the part of Buyer are necessary to authorize the execution, delivery, or performance of this Agreement.
(d) No Conflicts. The execution, delivery, and performance by Buyer of this Agreement, and the consummation of the transactions contemplated hereby, do not and will not (i) violate or conflict with the certificate of incorporation, bylaws, or other organizational documents of Buyer, (ii) violate or conflict with any law, statute, regulation, order, judgment, or decree applicable to Buyer, or (iii) conflict with, result in a breach of, constitute a default under, or require any consent under, any material agreement, contract, instrument, or obligation to which Buyer is a party or by which Buyer or its properties may be bound.
(e) Enforceability. This Agreement constitutes a legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws affecting creditors' rights generally and to general principles of equity.
Section 10.3 Representations and Warranties of Escrow Agent.
The Escrow Agent hereby represents and warrants to each of Seller and Buyer, as of the date hereof and as of the Closing Date, as follows:
(a) Organization and Good Standing. The Escrow Agent is a corporation duly organized, validly existing, and in good standing under the laws of the State of California.
(b) Power and Authority. The Escrow Agent has full corporate power and authority to act as escrow agent hereunder and to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby.
(c) Independence. The Escrow Agent is not an affiliate of, and does not have any ownership interest in or financial relationship with, either Seller or Buyer (other than the escrow agency relationship established by this Agreement), and there is no existing or potential conflict of interest that would prevent the Escrow Agent from performing its duties hereunder in an impartial and disinterested manner.