CONFIDENTIAL TREATMENT REQUESTED
ESCROW AGREEMENT
Dated as of November 27, 2023
among
PENTERRA PHARMACEUTICALS CORP.
RIDGELINE VENTURES, LP, as Stockholder Representative
and
GREYSTONE NATIONAL BANK, N.A., as Escrow Agent
In connection with the Agreement and Plan of Merger dated as of November 27, 2023 between Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc.
C&H Draft v.7.3 (Execution Version)
Prepared by: Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
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ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of November 27, 2023, by and among:
(1) Penterra Pharmaceuticals Corp., a corporation organized and existing under the laws of the State of Delaware (NYSE: PPHR), with its principal offices at 400 Innovation Drive, Suite 1200, Princeton, New Jersey 08540 ("Penterra" or the "Buyer");
(2) Ridgeline Ventures, LP, a limited partnership organized and existing under the laws of the State of Delaware, acting solely in its capacity as Stockholder Representative (as hereinafter defined) on behalf of the former stockholders of Caliston BioSciences, Inc. (the "Stockholder Representative"); and
(3) Greystone National Bank, N.A., a national banking association organized and existing under the laws of the United States, with its principal offices at 383 Madison Avenue, New York, New York 10179 (the "Escrow Agent").
Each of Penterra, the Stockholder Representative, and the Escrow Agent is sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc., a corporation organized and existing under the laws of the State of Delaware, with its principal office at 88 Harbor Point Road, Cambridge, Massachusetts 02142 ("Caliston"), have entered into that certain Agreement and Plan of Merger, dated as of November 27, 2023 (as it may be amended, supplemented, or otherwise modified from time to time in accordance with its terms, the "Merger Agreement"), pursuant to which Caliston will merge with and into Penterra (the "Merger"), with Penterra continuing as the surviving corporation in the Merger;
WHEREAS, pursuant to the Merger Agreement, the aggregate equity value of the Merger is Nine Hundred Twenty-Five Million Dollars ($925,000,000) (the "Aggregate Equity Value"), payable seventy-five percent (75%) in cash, in an amount equal to Six Hundred Ninety-Three Million Seven Hundred Fifty Thousand Dollars ($693,750,000) (the "Cash Consideration"), and twenty-five percent (25%) in shares of Penterra common stock, par value $0.001 per share (the "Stock Consideration"), in an amount equal to Two Hundred Thirty-One Million Two Hundred Fifty Thousand Dollars ($231,250,000), based on a thirty (30)-day volume-weighted average price of $39.17 per share of Penterra common stock as of June 1, 2023, implying the issuance of 5,903,497 shares of Penterra common stock to the former stockholders of Caliston;
WHEREAS, the Merger Agreement requires that Forty-Six Million Two Hundred Fifty Thousand Dollars ($46,250,000), representing five percent (5%) of the Aggregate Equity Value, of the merger consideration otherwise payable to the former stockholders of Caliston be deposited in escrow to secure the indemnification obligations of the former Caliston stockholders under Article IX of the Merger Agreement;
WHEREAS, Ridgeline Ventures, LP, through its Managing Partner, Ava Lindström, has been duly designated as the Stockholder Representative pursuant to that certain Stockholder Representative Agreement, dated as of November 27, 2023 (the "Stockholder Representative Agreement"), and has been authorized to act on behalf of the former Caliston stockholders with respect to indemnification claims, escrow disbursements, and all related post-closing matters arising under the Merger Agreement and this Agreement;
WHEREAS, Greystone National Bank, N.A. has agreed to serve as Escrow Agent upon and subject to the terms and conditions set forth in this Agreement;
WHEREAS, the Parties acknowledge that Penterra and Columnar Trust Services, Inc., acting as CVR Trustee, have entered into that certain Contingent Value Rights Agreement of even date herewith (the "CVR Agreement"), providing for potential additional contingent payments in an aggregate amount of up to One Hundred Twenty-Five Million Dollars ($125,000,000), which CVR Agreement is separate from and not subject to, and shall not be affected by, this Agreement; and
WHEREAS, capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and 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 — Defined Terms
As used in this Agreement, the following terms shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday, or a day on which national banking associations in the City of New York are authorized or required by law, regulation, or executive order to close.
"Claim Notice" means a written notice from Penterra to the Stockholder Representative and the Escrow Agent asserting an indemnification claim under Article IX of the Merger Agreement, substantially in the form attached hereto as Exhibit B.
"Closing Date" means the date of the closing of the Merger pursuant to Section 2.3 of the Merger Agreement.
"Dispute Notice" means a written notice from the Stockholder Representative to Penterra and the Escrow Agent objecting, in whole or in part, to a Claim Notice, substantially in the form attached hereto as Exhibit C.
"Escrow Account" means the segregated escrow account established and maintained by the Escrow Agent pursuant to Section 2.2 hereof to hold the Escrow Fund.
"Escrow Amount" or "Escrow Fund" means, at any time, the sum of (a) the initial deposit of Forty-Six Million Two Hundred Fifty Thousand Dollars ($46,250,000) deposited into the Escrow Account pursuant to Section 2.1 hereof, plus (b) any investment earnings and gains thereon, minus (c) any investment losses thereon, minus (d) any amounts previously disbursed from the Escrow Account in accordance with the terms of this Agreement, and minus (e) any fees and expenses of the Escrow Agent deducted from the Escrow Fund in accordance with Section 6.4 and Section 6.6 hereof.
"Escrow Period" means the period commencing on the Closing Date and ending on the Escrow Termination Date.
"Escrow Termination Date" means the date that is eighteen (18) months following the Closing Date; provided, however, that the Escrow Termination Date shall be automatically extended with respect to any portion of the Escrow Fund reserved for Pending Claims in accordance with Section 5.2 hereof until the resolution of all such Pending Claims.
"Final Order" means a judgment, order, decree, or award of a court of competent jurisdiction that (a) has not been reversed, stayed, modified, or amended, (b) as to which the time to appeal or petition for certiorari has expired and no appeal or petition for certiorari has been timely taken, or (c) as to which any right of appeal or petition for certiorari has been waived in writing, and as to which no appeal or petition for certiorari is pending.
"Indemnified Parties" means Penterra and its respective affiliates, and each of their respective officers, directors, employees, agents, representatives, successors, and permitted assigns.
"Joint Written Instruction" means a written instruction signed by both a duly authorized representative of Penterra and a duly authorized representative of the Stockholder Representative, substantially in the form attached hereto as Exhibit D, directing the Escrow Agent to take a specified action with respect to all or any portion of the Escrow Fund.
"Losses" shall have the meaning ascribed to such term in the Merger Agreement, and shall include, without limitation, all indemnifiable losses, damages, liabilities, claims, demands, costs, and expenses (including reasonable attorneys' fees and expenses) as further described in Article IX of the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger, dated as of November 27, 2023, by and between Penterra Pharmaceuticals Corp. and Caliston BioSciences, Inc., as it may be amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"Pending Claims" means any indemnification claims for which a Claim Notice has been delivered to the Escrow Agent and the Stockholder Representative prior to the Escrow Termination Date, but that remain unresolved (in whole or in part) as of the Escrow Termination Date, whether because a Dispute Notice has been timely delivered and the dispute has not yet been resolved, or because the Response Period has not yet expired.
"Permitted Investments" has the meaning set forth in Section 4.1 hereof.
"Response Period" means the period of thirty (30) Business Days following the Stockholder Representative's receipt of a Claim Notice, during which the Stockholder Representative may deliver a Dispute Notice in response to such Claim Notice.
"Stockholder Representative" means Ridgeline Ventures, LP, a Delaware limited partnership, acting in its capacity as the representative of the former stockholders of Caliston pursuant to the Stockholder Representative Agreement, together with any successor appointed in accordance with Section 7.3 hereof and the Stockholder Representative Agreement.
"Stockholder Representative Agreement" means the Stockholder Representative Agreement, dated as of November 27, 2023, among the former stockholders of Caliston and Ridgeline Ventures, LP, as it may be amended, supplemented, or otherwise modified from time to time in accordance with its terms.
"Survival Period" means the period of eighteen (18) months commencing on the Closing Date, during which the representations and warranties of the former Caliston stockholders set forth in Article IV of the Merger Agreement shall survive, as more fully set forth in Article IX of the Merger Agreement.
Section 1.2 — Rules of Construction
(a) Unless the context otherwise requires, all references herein to Articles, Sections, Exhibits, and Schedules shall refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement.
(b) The words "hereof," "herein," "hereto," "hereby," "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) All references to any agreement, document, or instrument shall mean such agreement, document, or instrument as amended, supplemented, modified, restated, or replaced from time to time in accordance with its terms and (to the extent applicable) the terms hereof.
(d) The word "including" and words of similar import, when used in this Agreement, shall mean "including, without limitation," unless the context otherwise requires.
(e) All references to a gender shall include both genders, and the singular shall include the plural and vice versa, as the context may require.
(f) All references to "$" or "Dollars" shall mean lawful currency of the United States of America.
(g) Section headings and titles are included for convenience of reference only and shall not affect the construction or interpretation of this Agreement.
(h) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting an instrument or causing any instrument to be drafted.
(i) The principles of construction set forth in Section 12.10 of the Merger Agreement (Rules of Construction) are incorporated herein by reference, mutatis mutandis, to the extent not inconsistent with the express provisions of this Agreement.
(j) This Agreement shall be interpreted and construed in accordance with the laws of the State of Delaware, as more fully set forth in Section 9.1 hereof.
ARTICLE 2 — ESTABLISHMENT OF ESCROW
Section 2.1 — Deposit of Escrow Fund
(a) On the Closing Date, Penterra shall deposit, or cause to be deposited, the sum of Forty-Six Million Two Hundred Fifty Thousand Dollars ($46,250,000) in immediately available funds by wire transfer to the Escrow Account in accordance with the wire transfer instructions set forth on Exhibit E hereto. Such amount represents a portion of the Cash Consideration of Six Hundred Ninety-Three Million Seven Hundred Fifty Thousand Dollars ($693,750,000) otherwise payable to the former stockholders of Caliston pursuant to the Merger Agreement.
(b) The Escrow Fund shall be funded by a pro rata reduction from each former Caliston stockholder's share of the merger consideration, calculated in accordance with each such stockholder's percentage ownership interest in Caliston immediately prior to the Effective Time (as defined in the Merger Agreement). The following table sets forth the principal equity holders of Caliston and their respective approximate ownership percentages:
(c) The Escrow Fund has been calculated as follows: $46,250,000 = 5% × $925,000,000 (Aggregate Equity Value).
(d) The Escrow Agent shall promptly notify Penterra and the Stockholder Representative in writing upon receipt of the Escrow Fund into the Escrow Account.
Section 2.2 — Escrow Account
(a) Upon execution of this Agreement, and in any event no later than one (1) Business Day prior to the anticipated Closing Date, the Escrow Agent shall establish and maintain a segregated escrow account at Greystone National Bank, N.A. to hold the Escrow Fund.
(b) The Escrow Account shall be titled as follows:
"Greystone National Bank, N.A., as Escrow Agent under the Escrow Agreement dated November 27, 2023, among Penterra Pharmaceuticals Corp., Ridgeline Ventures, LP, and Greystone National Bank, N.A."
(c) The Escrow Account shall be maintained separately from the general assets of the Escrow Agent and shall not be subject to any lien, attachment, trustee process, or any other judicial process of any creditor of the Escrow Agent. The Escrow Agent shall not commingle the Escrow Fund with any other funds held by the Escrow Agent or its affiliates, except as may be required in connection with the investment of the Escrow Fund in Permitted Investments in accordance with Article 4 hereof.
(d) The federal tax identification number for reporting purposes with respect to the Escrow Account shall be Caliston's employer identification number (EIN: 84-4219063), or such other taxpayer identification number as may be designated by the Stockholder Representative, with written notice to the Escrow Agent and Penterra, with respect to the former stockholders of Caliston.
Section 2.3 — Ownership; Tax Treatment
(a) The Parties agree that, for all federal, state, and local income tax purposes, the Escrow Fund (including all investment income earned thereon) shall be treated as owned by the former stockholders of Caliston, in proportion to each such former stockholder's pro rata share as set forth in Section 2.1(b) hereof, from the date of deposit through the date of distribution or disbursement, as applicable. The Parties shall not take any position on any tax return or in any tax proceeding that is inconsistent with this Section 2.3(a), unless required by a determination (as defined in Section 1313 of the Internal Revenue Code of 1986, as amended (the "Code")).
(b) All investment income earned on the Escrow Fund shall be reported to the Internal Revenue Service (the "IRS") as income of the former stockholders of Caliston in their respective proportionate shares, and the Escrow Agent shall have no liability for any taxes owed on such income.
(c) The Stockholder Representative shall be responsible for providing to the Escrow Agent, on a timely basis, (i) IRS Forms W-9 (or, if applicable, the appropriate IRS Form W-8) duly completed and executed by or on behalf of each former Caliston stockholder entitled to receive distributions from the Escrow Fund, and (ii) such other tax information as the Escrow Agent may reasonably request in order to comply with applicable tax reporting and withholding obligations. The Escrow Agent shall not be required to make any distribution to or for the account of any person for whom it has not received a properly completed Form W-9 (or applicable Form W-8).
(d) The Escrow Agent shall prepare and file IRS Forms 1099 (and any other information returns required by the Code or applicable state or local tax law) with respect to the Escrow Fund and the investment income earned thereon, as and when required by applicable law. The Escrow Agent shall deliver copies of all such information returns to the Stockholder Representative and Penterra promptly upon filing.
(e) In the event that any portion of the Escrow Fund is required to be withheld under applicable tax laws, the Escrow Agent shall be entitled to deduct and withhold such amounts from payments otherwise distributable hereunder, and any amounts so withheld shall be treated for all purposes of this Agreement as having been distributed to the person with respect to whom such withholding was made.
ARTICLE 3 — CLAIMS PROCEDURES AND DISBURSEMENT MECHANICS
Section 3.1 — Indemnification Claims — Claim Notice
(a) At any time during the Escrow Period, Penterra may submit a Claim Notice to the Stockholder Representative and the Escrow Agent in accordance with the notice provisions of Article 8 hereof. All claims asserted in a Claim Notice must relate to indemnification obligations of the former Caliston stockholders under Article IX of the Merger Agreement.
(b) Each Claim Notice shall be in writing, substantially in the form set forth in Exhibit B hereto, and shall specify:
(i) the nature of the indemnification claim, including a description of the event, occurrence, or condition giving rise thereto;
(ii) the specific representations, warranties, covenants, or agreements set forth in the Merger Agreement that are alleged to have been breached or with respect to which Losses have been or may be incurred;
(iii) a reasonably detailed description of the facts and circumstances giving rise to the claim, including, to the extent reasonably available, copies of or references to relevant documentation supporting the claim;
(iv) the amount of Losses claimed, or, if the amount is not then determinable, a good-faith estimate of the reasonably anticipated amount of Losses, together with a statement that the amount is an estimate and the basis for such estimate; and
(v) a statement that Penterra is requesting disbursement from the Escrow Fund in satisfaction of such claim.
(c) The delivery of a Claim Notice to the Escrow Agent shall constitute authorization for the Escrow Agent to hold the claimed amount (or the good-faith estimate thereof) in the Escrow Account pending resolution of the claim in accordance with the terms of this Agreement. The Escrow Agent shall confirm receipt of each Claim Notice in writing to Penterra and the Stockholder Representative within two (2) Business Days of receipt thereof.
(d) Penterra may submit one or more Claim Notices with respect to the same or different claims at any time during the Escrow Period, subject to the aggregate limitations set forth in Section 3.5 hereof.
Section 3.2 — Response Period; Dispute Notice
(a) Following receipt of a Claim Notice, the Stockholder Representative shall have thirty (30) Business Days (the "Response Period") to deliver a Dispute Notice to Penterra and the Escrow Agent, in accordance with the notice provisions of Article 8 hereof.
(b) Each Dispute Notice shall be in writing, substantially in the form set forth in Exhibit C hereto, and shall set forth:
(i) the specific objections of the Stockholder Representative to the claim set forth in the Claim Notice, including the factual and legal bases for such objections;
(ii) the amount, if any, that the Stockholder Representative concedes is payable to Penterra from the Escrow Fund with respect to such claim (the "Conceded Amount"); and
(iii) the basis for the dispute, set forth in reasonable detail, including any facts or arguments supporting the Stockholder Representative's position that the claim is not valid or that the amount claimed is excessive.
(c) If the Stockholder Representative fails to deliver a Dispute Notice within the Response Period, the claim set forth in the applicable Claim Notice shall be deemed accepted by the Stockholder Representative in its entirety, and the claimed amount shall be disbursed to Penterra in accordance with Section 3.3 hereof. The Escrow Agent shall be entitled to rely on the absence of a timely Dispute Notice as conclusive evidence that the claim has been accepted.
(d) The Escrow Agent shall confirm receipt of each Dispute Notice in writing to Penterra and the Stockholder Representative within two (2) Business Days of receipt thereof.
Section 3.3 — Disbursement of Undisputed Claims
(a) If no Dispute Notice is delivered by the Stockholder Representative within the Response Period with respect to a Claim Notice, the Escrow Agent shall, within five (5) Business Days following the expiration of the Response Period, disburse from the Escrow Account to Penterra (by wire transfer of immediately available funds to the account specified in Exhibit E hereto, or such other account as Penterra may designate in writing) an amount equal to the lesser of (i) the claimed amount set forth in the Claim Notice and (ii) the then-available balance of the Escrow Fund.
(b) If the Stockholder Representative delivers a Dispute Notice within the Response Period that concedes a Conceded Amount with respect to a Claim Notice, the Escrow Agent shall, within five (5) Business Days of its receipt of the Dispute Notice, disburse the Conceded Amount from the Escrow Account to Penterra (by wire transfer of immediately available funds to the account specified in Exhibit E hereto, or such other account as Penterra may designate in writing), subject to the then-available balance of the Escrow Fund. The disputed portion of the claim shall remain in the Escrow Account pending resolution in accordance with Section 3.4 hereof.
(c) The Escrow Agent shall promptly confirm each disbursement in writing to Penterra and the Stockholder Representative.
Section 3.4 — Resolution of Disputed Claims
(a) If a Dispute Notice is timely delivered by the Stockholder Representative with respect to all or any portion of a claim set forth in a Claim Notice, the disputed amount shall remain in the Escrow Account pending resolution of the dispute.
(b) Resolution of a disputed claim may occur in one of the following manners:
(i) Joint Written Instruction. Penterra and the Stockholder Representative may at any time execute and deliver a Joint Written Instruction to the Escrow Agent, directing the Escrow Agent to disburse all or any portion of the disputed amount to Penterra, to the Stockholder Representative (for the account of the former Caliston stockholders), or in any combination thereof; or
(ii) Final Order. Either Penterra or the Stockholder Representative may obtain a Final Order of a court of competent jurisdiction (which, for purposes of this Agreement, shall be the Court of Chancery of the State of Delaware or, if the Court of Chancery declines to exercise jurisdiction, any state or federal court located in the State of Delaware) directing the disbursement of all or any portion of the disputed amount.
(c) Upon receipt of a Joint Written Instruction or a certified copy of a Final Order (in form reasonably satisfactory to the Escrow Agent), the Escrow Agent shall disburse the Escrow Fund in accordance therewith within five (5) Business Days by wire transfer of immediately available funds to the account(s) designated therein.
(d) If a Final Order requires disbursement to Penterra of an amount less than the originally claimed amount, the difference between the claimed amount and the amount ordered to be disbursed to Penterra shall be released by the Escrow Agent to the Stockholder Representative within five (5) Business Days of the Escrow Agent's receipt of such Final Order.
(e) The Escrow Agent shall have no responsibility to determine the validity, authenticity, or enforceability of any Joint Written Instruction or Final Order presented to it, except to confirm that such instrument appears on its face to comply with the requirements of this Agreement.
Section 3.5 — Limitations on Claims
(a) The Escrow Agent shall not disburse or release from the Escrow Account any amount in excess of the then-available Escrow Fund balance. In no event shall the aggregate disbursements from the Escrow Fund to Penterra exceed the sum of (i) Forty-Six Million Two Hundred Fifty Thousand Dollars ($46,250,000), plus (ii) all accumulated investment earnings thereon.
(b) The Escrow Fund shall be the sole and exclusive source of recovery for indemnification claims of the Indemnified Parties under Article IX of the Merger Agreement, except to the extent that the Merger Agreement expressly provides that claims based on fraud or willful breach are not limited to the Escrow Fund. For the avoidance of doubt, nothing in this Agreement shall limit or otherwise affect any remedies available to Penterra under the Merger Agreement in the case of fraud or willful breach by any former Caliston stockholder.
(c) The limitations set forth in this Section 3.5 apply solely to the obligations and duties of the Escrow Agent hereunder and do not modify, amend, or limit the substantive indemnification provisions of the Merger Agreement, which shall be governed in all respects by the terms of the Merger Agreement.
Section 3.6 — Partial Disbursements
(a) In the event that multiple Claim Notices are pending at any time, the Escrow Agent shall process and disburse claims in the chronological order in which the applicable Claim Notices were received by the Escrow Agent, with the earliest received Claim Notice being processed first.
(b) If at any time the Escrow Fund is insufficient to satisfy all pending undisputed claims (or undisputed portions of claims), the Escrow Agent shall disburse the then-available balance of the Escrow Fund with respect to the earliest pending claim(s) and shall hold the remaining balance (if any) until receipt of additional funds (if applicable) or until directed by Joint Written Instruction or Final Order as to the disposition of the remaining balance.
(c) The Escrow Agent shall promptly notify Penterra and the Stockholder Representative in writing if the aggregate amount of all pending Claim Notices exceeds the then-available balance of the Escrow Fund.
ARTICLE 4 — INVESTMENT OF ESCROW FUND
Section 4.1 — Permitted Investments
(a) The Escrow Agent shall invest and reinvest the Escrow Fund, and any investment earnings thereon, in one or more of the following investments (collectively, "Permitted Investments") as directed by Joint Written Instruction:
(i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (including United States Treasury bills), in each case with maturities of ninety (90) days or less from the date of acquisition;
(ii) certificates of deposit, time deposits, or money market deposit accounts issued by Greystone National Bank, N.A. or any other bank or financial institution that is organized under the laws of the United States or any state thereof and is insured by the Federal Deposit Insurance Corporation, provided that such institution has combined capital and surplus of at least Ten Billion Dollars ($10,000,000,000);
(iii) money market mutual funds that are registered under the Investment Company Act of 1940, as amended, and that are rated at least "Aaa" by Moody's Investors Service, Inc. or "AAAm" by S&P Global Ratings (or any successor thereto), or an equivalent rating by any other nationally recognized statistical rating organization; and
(iv) such other investments as may be agreed upon by Penterra and the Stockholder Representative and specified in a Joint Written Instruction delivered to the Escrow Agent.
(b) In the absence of a Joint Written Instruction directing the investment of the Escrow Fund (or any portion thereof) in specific Permitted Investments, the Escrow Agent shall invest and reinvest the Escrow Fund in money market deposit accounts of Greystone National Bank, N.A. or, at the Escrow Agent's discretion, in direct obligations of the United States of America with maturities of ninety (90) days or less.
(c) The Escrow Agent shall liquidate Permitted Investments as necessary to make disbursements from the Escrow Account in accordance with this Agreement. The Escrow Agent shall not be liable for any loss resulting from the liquidation of any investment prior to its maturity.
(d) The Parties acknowledge that Greystone National Bank, N.A. and its affiliates may receive compensation in connection with the Permitted Investments, including as a result of the Escrow Fund being invested in deposit accounts or money market funds maintained by or affiliated with Greystone National Bank, N.A.
Section 4.2 — Investment Risk
All investment risk associated with the Escrow Fund, including, without limitation, the risk of loss of principal, fluctuations in interest rates, and changes in the market value of Permitted Investments, shall be borne solely by the former stockholders of Caliston (as the owners of the Escrow Fund for all tax purposes). The Escrow Agent shall not be liable for any decline in the value of the Escrow Fund resulting from market conditions, the creditworthiness of any issuer of Permitted Investments, or any other cause, except to the extent directly caused by the Escrow Agent's gross negligence, fraud, or willful misconduct.
Section 4.3 — Investment Earnings
(a) All investment earnings (net of investment losses, if any) on the Escrow Fund shall be added to and become part of the Escrow Fund and shall be subject to the terms and conditions of this Agreement in all respects.
(b) Upon the termination of this Agreement and the final distribution of the Escrow Fund in accordance with Article 5 hereof, all accumulated net investment earnings remaining in the Escrow Account (after deduction of any amounts disbursed to Penterra and any unpaid fees and expenses of the Escrow Agent) shall be distributed to the Stockholder Representative for distribution to the former stockholders of Caliston in their respective pro rata shares.
(c) The Escrow Agent shall provide quarterly statements to Penterra and the Stockholder Representative reflecting the investment activity, earnings, and current balance of the Escrow Account, within fifteen (15) days following the end of each calendar quarter.
ARTICLE 5 — TERMINATION AND FINAL DISTRIBUTION
Section 5.1 — Escrow Termination Date
(a) The Escrow Period shall terminate on the date that is eighteen (18) months following the Closing Date (the "Escrow Termination Date"), subject to extension in accordance with Section 5.2 hereof with respect to Pending Claims.
(b) On the Escrow Termination Date (or, if such date is not a Business Day, on the next succeeding Business Day), the Escrow Agent shall distribute the remaining balance of the Escrow Fund, after deducting therefrom (i) any amounts reserved for Pending Claims pursuant to Section 5.2 hereof, and (ii) any unpaid fees and expenses of the Escrow Agent then due and payable pursuant to Section 6.6 hereof, to the Stockholder Representative by wire transfer of immediately available funds to the account specified in Exhibit E hereto (or such other account as the Stockholder Representative may designate in writing), for distribution to the former stockholders of Caliston in their respective pro rata shares.
(c) The Escrow Agent shall provide Penterra and the Stockholder Representative with written notice of the anticipated Escrow Termination Date not less than fifteen (15) days prior to such date.
Section 5.2 — Reservation for Pending Claims
(a) If any Claim Notices remain outstanding and unresolved (i.e., constitute Pending Claims) as of the Escrow Termination Date, the Escrow Agent shall retain in the Escrow Account an amount equal to the aggregate claimed amounts (or good-faith estimates thereof) of all such Pending Claims (the "Reserve Amount").
(b) The Reserve Amount shall remain in the Escrow Account, invested in Permitted Investments in accordance with Article 4 hereof, until all Pending Claims have been resolved in accordance with the provisions of Article 3 hereof.
(c) Upon the resolution of each Pending Claim (whether by Joint Written Instruction, Final Order, or deemed acceptance pursuant to Section 3.2(c) hereof), the Escrow Agent shall:
(i) disburse the resolved amount to the appropriate party (Penterra or the Stockholder Representative) in accordance with the applicable Joint Written Instruction or Final Order; and
(ii) release any excess of the Reserve Amount attributable to such Pending Claim (i.e., the difference, if any, between the reserved amount for such Pending Claim and the amount actually disbursed to Penterra with respect thereto) to the Stockholder Representative by wire transfer of immediately available funds within five (5) Business Days of such resolution.
(d) The Escrow Agent shall recalculate and adjust the Reserve Amount upon the resolution of each Pending Claim and shall notify Penterra and the Stockholder Representative of any adjustments thereto.
Section 5.3 — Final Distribution
(a) Upon the resolution of all Pending Claims and the disbursement or release of all amounts reserved pursuant to Section 5.2 hereof, the remaining balance of the Escrow Fund (if any), including all net accumulated investment earnings thereon, shall be promptly distributed by the Escrow Agent to the Stockholder Representative by wire transfer of immediately available funds to the account specified in Exhibit E hereto (or such other account as the Stockholder Representative may designate in writing), for the account of the former stockholders of Caliston.
(b) Upon completion of the final distribution contemplated by this Section 5.3, the Escrow Agent shall deliver written confirmation thereof to Penterra and the Stockholder Representative, and the duties, obligations, and responsibilities of the Escrow Agent under this Agreement shall thereupon terminate.
(c) Notwithstanding the foregoing, the provisions of Section 6.3 (Limitation of Liability), Section 6.4 (Indemnification of Escrow Agent), and Article 9 (General Provisions) shall survive the termination of the Escrow Agent's duties and the termination of this Agreement.
ARTICLE 6 — ESCROW AGENT
Section 6.1 — Duties and Responsibilities
(a) The Escrow Agent hereby agrees to hold, invest, and disburse the Escrow Fund in accordance with the terms and conditions of this Agreement. The Escrow Agent acts solely as a stakeholder and in a ministerial capacity hereunder and shall have no duties, responsibilities, or obligations other than those expressly set forth in this Agreement.
(b) No implied duties, covenants, or obligations of any kind shall be read into this Agreement against or on the part of the Escrow Agent, including, without limitation, any implied duty of good faith or any fiduciary duty (except as may be imposed by applicable law and cannot be waived). The Escrow Agent shall not be deemed to be a trustee or fiduciary of any Party or any former Caliston stockholder.
(c) The Escrow Agent shall not be required to interpret, construe, or enforce the terms of the Merger Agreement, the Stockholder Representative Agreement, or any other agreement (other than this Agreement) between or among the Parties or any other person. The Escrow Agent shall not be required to determine whether any claim for indemnification is valid, whether any breach of the Merger Agreement has occurred, or whether any disbursement from the Escrow Fund is appropriate under the terms of the Merger Agreement.
(d) The Escrow Agent shall not be required to take or refrain from taking any action hereunder if the Escrow Agent determines in good faith that such action or inaction may conflict with or violate any applicable law, rule, or regulation, or subject the Escrow Agent to liability, unless the Escrow Agent has received security or indemnity satisfactory to it against such liability.
Section 6.2 — Reliance
(a) The Escrow Agent shall be entitled to rely, and shall be fully protected in relying, upon any written notice, instruction, certificate, statement, request, consent, agreement, or other document or instrument that the Escrow Agent in good faith believes to be genuine and to have been signed, executed, or delivered by a duly authorized representative of the applicable Party.
(b) The Escrow Agent may consult with and rely upon the advice of legal counsel (which may include internal counsel of Greystone National Bank, N.A. or outside counsel engaged at the expense of the Parties as provided herein), accountants, and other professional advisors selected by it in good faith, and shall not be liable for any action taken, suffered, or omitted to be taken in good faith in accordance with such advice.
(c) The Escrow Agent may act or refrain from acting in reliance upon any resolution, certification, affidavit, document, or instrument believed by the Escrow Agent to be genuine and to have been passed, signed, or presented by the proper Party or parties.
(d) The Escrow Agent shall not be obligated to take any legal or other action hereunder that might in its judgment involve or cause it to incur any expense, cost, or liability, unless it has been furnished with indemnity satisfactory to it.
Section 6.3 — Limitation of Liability
(a) The Escrow Agent shall not be liable for any loss, cost, expense, claim, damage, or liability of any kind ("Escrow Agent Losses") arising out of or in connection with the performance of its duties hereunder, except to the extent that such Escrow Agent Losses are directly caused by the Escrow Agent's own gross negligence, fraud, or willful misconduct, as determined by a Final Order of a court of competent jurisdiction.
(b) Without limiting the generality of the foregoing, the Escrow Agent shall not be liable for:
(i) any act of God, war (whether declared or undeclared), terrorism, insurrection, civil commotion, riot, epidemic, pandemic, natural disaster, or other force majeure event;
(ii) any action taken or omitted by any governmental authority, including any executive order, sanction, embargo, or regulatory action;
(iii) any failure, interruption, or malfunction of electronic, mechanical, or communication systems (including wire transfer systems) beyond the Escrow Agent's reasonable control, including systems operated by the Federal Reserve, the Society for Worldwide Interbank Financial Telecommunication (SWIFT), or other third-party service providers;
(iv) any errors, inaccuracies, or omissions in wire transfer instructions, account information, or other data provided to the Escrow Agent by any Party; or
(v) any tax consequences or tax liability to any Party or any former Caliston stockholder arising from or related to the Escrow Fund, any investment thereof, or any distribution therefrom.
(c) In no event shall the Escrow Agent be liable for any indirect, incidental, special, consequential, or punitive damages of any kind, regardless of the form of action or theory of liability, even if the Escrow Agent has been advised of the possibility of such damages.
(d) The aggregate liability of the Escrow Agent under this Agreement shall in no event exceed the aggregate amount of fees actually received by the Escrow Agent under this Agreement.
Section 6.4 — Indemnification of Escrow Agent
(a) Penterra and the Stockholder Representative (on behalf of the former stockholders of Caliston, with recourse to the Escrow Fund) shall jointly and severally indemnify, defend, and hold harmless the Escrow Agent and its directors, officers, employees, agents, and affiliates (collectively, the "Escrow Agent Indemnified Parties") from and against any and all losses, liabilities, claims, damages, costs, and expenses (including reasonable attorneys' fees and disbursements) (collectively, "Agent Indemnification Losses") arising out of or in connection with the Escrow Agent's acceptance of appointment as Escrow Agent hereunder and the performance or non-performance of its duties hereunder, except to the extent that such Agent Indemnification Losses are directly caused by the Escrow Agent's gross negligence, fraud, or willful misconduct, as determined by a Final Order.
(b) As between Penterra and the Stockholder Representative (on behalf of the former Caliston stockholders), any amounts payable under this Section 6.4 shall be borne equally (50%/50%) by Penterra and the former Caliston stockholders (from the Escrow Fund), unless otherwise agreed by Penterra and the Stockholder Representative in writing.
(c) If any Agent Indemnification Losses are not paid by Penterra or the Stockholder Representative within thirty (30) days following written demand therefor by the Escrow Agent, the Escrow Agent may satisfy such claims from the Escrow Fund by deducting the amount of such unpaid Agent Indemnification Losses from the Escrow Account, and the Escrow Agent shall provide prompt written notice of any such deduction to Penterra and the Stockholder Representative. Any amounts so deducted shall be treated for all purposes of this Agreement as a reduction to the Escrow Fund.
(d) The indemnification obligations of this Section 6.4 shall survive the termination of this Agreement and the resignation or removal of the Escrow Agent.
Section 6.5 — Resignation and Removal
(a) The Escrow Agent may resign from its duties hereunder at any time upon not less than thirty (30) days' prior written notice to both Penterra and the Stockholder Representative. Such resignation shall be effective on the date specified in the notice of resignation or, if no date is specified, on the thirtieth (30th) day following delivery of such notice.
(b) The Escrow Agent may be removed at any time by a Joint Written Instruction delivered to the Escrow Agent, specifying the effective date of removal (which shall be not less than fifteen (15) days following receipt of such Joint Written Instruction by the Escrow Agent).
(c) Upon the resignation or removal of the Escrow Agent, Penterra and the Stockholder Representative shall, within thirty (30) days following the effective date of such resignation or removal, appoint a successor escrow agent by Joint Written Instruction. Any successor escrow agent must be a national banking association organized under the laws of the United States or a state-chartered banking institution, in either case with combined capital and surplus of at least Five Billion Dollars ($5,000,000,000).
(d) Upon appointment of a successor escrow agent and delivery by such successor of a written acceptance of appointment in form reasonably satisfactory to the resigning or removed Escrow Agent, the resigning or removed Escrow Agent shall transfer the Escrow Fund and all records relating thereto to the successor escrow agent, and shall thereafter be discharged from all further duties and obligations hereunder, except with respect to any pending claims for Agent Indemnification Losses arising prior to the effective date of resignation or removal.
(e) If no successor escrow agent is appointed within thirty (30) days following the effective date of the Escrow Agent's resignation or removal, the Escrow Agent may (i) petition the Court of Chancery of the State of Delaware (or any other court of competent jurisdiction) to appoint a successor escrow agent, or (ii) deposit the Escrow Fund with such court in a manner authorized by applicable law, at which point the Escrow Agent shall be discharged from all further duties and obligations hereunder. All costs and expenses incurred by the Escrow Agent in connection with such petition or deposit shall be borne equally by Penterra and the Stockholder Representative (from the Escrow Fund as applicable).
Section 6.6 — Escrow Agent Fees and Expenses
(a) The Escrow Agent shall be entitled to compensation for its services hereunder as set forth in the fee schedule attached hereto as Exhibit A (the "Fee Schedule"), which Fee Schedule includes, without limitation:
(i) an annual escrow administration fee;
(ii) per-transaction processing fees for wire transfers and other disbursements; and
(iii) per-claim processing fees for the processing of Claim Notices, Dispute Notices, and Joint Written Instructions.
(b) All fees and expenses of the Escrow Agent (including the fees set forth in the Fee Schedule and all reasonable out-of-pocket expenses, including the fees and disbursements of counsel to the Escrow Agent) shall be paid by Penterra and shall not be deducted from the Escrow Fund, except as otherwise provided in Section 6.4(c) hereof with respect to Agent Indemnification Losses.
(c) The first year's annual escrow administration fee shall be payable by Penterra upon execution of this Agreement. Subsequent annual administration fees shall be payable in advance on each anniversary of the date of this Agreement (or the Closing Date, as agreed by the Parties), or within thirty (30) days following invoice therefor by the Escrow Agent.
(d) In the event that the Escrow Agent is required to perform extraordinary services not contemplated by this Agreement or the Fee Schedule (including, without limitation, services in connection with any litigation, arbitration, or regulatory proceeding involving the Escrow Fund), the Escrow Agent shall be entitled to compensation for such services at its then-standard hourly rates, payable by Penterra within thirty (30) days following invoice therefor.
Section 6.7 — Interpleader
(a) In the event of any dispute between Penterra and the Stockholder Representative (or among any parties claiming an interest in the Escrow Fund) as to the proper disposition of the Escrow Fund or any portion thereof, and the Escrow Agent is unable to determine the proper disposition of the Escrow Fund based on the express terms of this Agreement, the Escrow Agent may, in its sole discretion:
(i) continue to hold the Escrow Fund (or the disputed portion thereof) in the Escrow Account pending receipt of a Joint Written Instruction or Final Order; or
(ii) deposit the Escrow Fund (or the disputed portion thereof) with the Court of Chancery of the State of Delaware (or any other court of competent jurisdiction) and commence an interpleader action pursuant to applicable rules of civil procedure, naming Penterra and the Stockholder Representative (and any other claimant, as applicable) as defendants or respondents.
(b) Upon the deposit of the Escrow Fund (or the applicable portion thereof) with a court of competent jurisdiction pursuant to Section 6.7(a)(ii) above, the Escrow Agent shall be fully discharged from any and all further duties, obligations, and liabilities with respect to the deposited amount.
(c) All costs and expenses incurred by the Escrow Agent in connection with any interpleader action (including reasonable attorneys' fees and court costs) shall be borne equally by Penterra and the Stockholder Representative (from the Escrow Fund as applicable), and the Escrow Agent shall be entitled to deduct such costs and expenses from the Escrow Fund prior to any deposit with the court or, if the Escrow Fund has already been deposited, to seek reimbursement from Penterra and the Stockholder Representative.
Section 6.8 — No Duty to Investigate
The Escrow Agent shall have no duty or obligation to inquire into, determine, or investigate the validity, accuracy, completeness, or sufficiency of any document, instrument, notice, instruction, certificate, or other communication delivered to it under this Agreement. The Escrow Agent shall act solely in accordance with the express provisions of this Agreement and shall not be required to exercise any judgment or discretion with respect to any matter not expressly addressed herein. The Escrow Agent shall not be charged with knowledge of or have any obligation to comply with the terms of any other agreement among the Parties (including the Merger Agreement, the Stockholder Representative Agreement, or the CVR Agreement), except to the extent expressly incorporated by reference herein.
ARTICLE 7 — STOCKHOLDER REPRESENTATIVE
Section 7.1 — Authority
(a) Ridgeline Ventures, LP, acting through Ava Lindström, Managing Partner, or such other duly authorized persons as may be designated from time to time in writing by Ridgeline Ventures, LP to the Escrow Agent and Penterra, is hereby irrevocably appointed as the Stockholder Representative for all purposes of this Agreement. The Stockholder Representative is authorized and empowered to act on behalf of all former stockholders of Caliston with respect to all matters arising under or in connection with this Agreement.