ESCROW AGREEMENT
by and among
NORTHGATE TELECOMMUNICATIONS PLC
CLIVE ATHERTON, as Stockholder Representative
and
CLEARFIELD ESCROW SERVICES, INC., as Escrow Agent
Dated as of [●], 2025
In connection with the Agreement and Plan of Merger, dated as of April 7, 2025, among Northgate Telecommunications PLC, NTP Acquisition Sub, Inc., and Cascadia Fiber Networks, Inc.
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ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is entered into as of [●], 2025 (the "Effective Date"), by and among:
(1) NORTHGATE TELECOMMUNICATIONS PLC, a public limited company organized and existing under the laws of England and Wales, with its registered office at 14 Broadwick Place, London W1F 8HN, United Kingdom ("Parent");
(2) CLIVE ATHERTON, in his capacity as the Stockholder Representative appointed pursuant to the Stockholder Representative Agreement dated on or about the date hereof, with an address c/o Timberline Growth Partners, LP, 888 SW Fifth Avenue, Suite 1500, Portland, Oregon 97204 (the "Stockholder Representative"); and
(3) CLEARFIELD ESCROW SERVICES, INC., a corporation organized and existing under the laws of the State of New York, with its principal offices at 100 Wall Street, 20th Floor, New York, New York 10005 (the "Escrow Agent").
Each of Parent, the Stockholder Representative, and the Escrow Agent is referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS:
A. Parent, NTP Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), and Cascadia Fiber Networks, Inc., a Delaware corporation (the "Company" or "Cascadia"), have entered into that certain Agreement and Plan of Merger, dated as of April 7, 2025 (as it may be amended, restated, supplemented, or otherwise modified from time to time, the "Merger Agreement"), pursuant to which, among other things, Merger Sub will merge with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent, in a forward merger effected under Section 251 of the Delaware General Corporation Law. The aggregate merger consideration payable in connection with the Merger is Seven Hundred Fifty Million Dollars ($750,000,000), payable entirely in cash to the holders of the issued and outstanding capital stock, vested in-the-money options, and other equity interests of the Company as of immediately prior to the effective time of the Merger, subject to the adjustments, escrow holdbacks, and other terms and conditions set forth in the Merger Agreement.
B. Pursuant to the Merger Agreement, at the Closing (as defined therein), Parent is required to deposit, or cause to be deposited, Sixty-Seven Million Five Hundred Thousand Dollars ($67,500,000) (the "Escrow Amount") into an escrow account to be established hereunder, to secure the indemnification obligations of the former stockholders of the Company to Parent and its affiliates as set forth in Article IX of the Merger Agreement. The Escrow Amount equals nine percent (9%) of the aggregate merger consideration (calculated as $750,000,000 multiplied by 0.09), which represents fifty percent (50%) of the indemnification cap of One Hundred Thirty-Five Million Dollars ($135,000,000) (equal to eighteen percent (18%) of the aggregate deal value) applicable to such indemnification obligations under the Merger Agreement.
C. Clive Atherton has been duly appointed as the Stockholder Representative pursuant to that certain Stockholder Representative Agreement, dated on or about the date hereof, among Mr. Atherton, Parent, and the former stockholders of the Company (the "Stockholder Representative Agreement"), to act on behalf of and for the benefit of the former stockholders of the Company with respect to, among other things, the assertion of and response to indemnification claims, the administration and release of escrow funds, the resolution of working capital adjustment disputes, and other post-closing matters arising under the Merger Agreement and this Agreement. Mr. Atherton serves as Managing Partner of Timberline Growth Management, LLC, the general partner of Timberline Growth Partners, LP, which, as of immediately prior to the effective time of the Merger, held approximately forty-two and three-tenths percent (42.3%) of the issued and outstanding shares of the Company's common stock.
D. Parent and the Stockholder Representative have jointly appointed Clearfield Escrow Services, Inc. to serve as escrow agent under this Agreement, and Clearfield Escrow Services, Inc. has agreed to accept such appointment and to hold, invest, and disburse the Escrow Fund (as defined below) in accordance with the terms and conditions hereof. The designated Escrow Officer at Clearfield shall be Martin Grieves.
E. The Parties wish to establish the terms and conditions pursuant to which the Escrow Amount will be deposited, held, invested, claimed against, and released, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Business Day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York are authorized or required by law, regulation, or executive order to be closed.
"Claim Notice" has the meaning set forth in Section 4.1.
"Claimed Amount" has the meaning set forth in Section 4.1.
"Closing" has the meaning set forth in the Merger Agreement.
"Closing Date" means the date on which the Closing occurs pursuant to the Merger Agreement.
"Dispute Notice" has the meaning set forth in Section 4.3.
"Escrow Account" means the segregated escrow account established and maintained by the Escrow Agent pursuant to Section 2.2.
"Escrow Amount" means Sixty-Seven Million Five Hundred Thousand Dollars ($67,500,000).
"Escrow Earnings" means all interest, dividends, gains, and other income earned or realized on or with respect to the investment of the Escrow Fund.
"Escrow Fund" means the Escrow Amount, together with all Escrow Earnings, less any amounts previously disbursed or released from the Escrow Account in accordance with this Agreement.
"Escrow Release Date" means the date that is twenty-four (24) months after the Closing Date, which date is aligned with the expiration of the survival period for general representations and warranties under Article IX of the Merger Agreement.
"Final Release Date" has the meaning set forth in Section 5.2.
"Fundamental Representations" has the meaning set forth in the Merger Agreement, which representations and warranties survive for a period of sixty (60) months from the Closing Date.
"Indemnification Cap" means One Hundred Thirty-Five Million Dollars ($135,000,000) (calculated as $750,000,000 multiplied by 0.18), as set forth in the Merger Agreement.
"Joint Written Direction" means a written instruction executed by both an authorized representative of Parent and the Stockholder Representative (or an authorized representative thereof) and delivered to the Escrow Agent in accordance with the terms of this Agreement.
"Losses" has the meaning set forth in the Merger Agreement.
"Merger Agreement" has the meaning set forth in the Recitals.
"Outstanding Claims" means, as of any date of determination, all claims that have been asserted by Parent against the Escrow Fund by delivery of a Claim Notice in accordance with Section 4.1 and that remain unresolved (whether disputed or undisputed) as of such date.
"Parent" means Northgate Telecommunications PLC, a public limited company organized and existing under the laws of England and Wales, with its registered office at 14 Broadwick Place, London W1F 8HN, United Kingdom.
"Paying Agent" means Trident Transfer Agency, Inc., located at 480 Washington Boulevard, Jersey City, New Jersey 07310, or such other paying agent as may be designated pursuant to the Merger Agreement.
"Permitted Investments" has the meaning set forth in Section 3.1.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity of any kind.
"Reserved Amount" has the meaning set forth in Section 5.1.
"Response Period" has the meaning set forth in Section 4.3.
"Stockholder Representative" means Clive Atherton, acting in his capacity as the representative of the former stockholders of the Company appointed pursuant to the Stockholder Representative Agreement, and any successor thereto duly appointed in accordance with the Stockholder Representative Agreement.
"Tax Representations" has the meaning set forth in the Merger Agreement, which representations and warranties survive until the date that is sixty (60) days after the expiration of the applicable statute of limitations (including any extensions or waivers thereof).
Section 1.2 — Interpretation; Construction
(a) Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Merger Agreement.
(b) The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
(c) Whenever the context may require, any pronoun used herein shall include the corresponding masculine, feminine, or neuter forms, and the singular form of nouns, pronouns, and verbs shall include the plural, and vice versa.
(d) The words "include," "includes," and "including" shall be deemed to be followed by the phrase "without limitation" whether or not so stated.
(e) The words "hereof," "herein," "hereunder," "hereby," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement.
(f) References to "Sections," "Articles," "Exhibits," and "Schedules" shall be to Sections, Articles, Exhibits, and Schedules of or attached to this Agreement, unless otherwise specified.
(g) References to "dollars" or "$" shall mean United States dollars.
(h) References to any statute, rule, or regulation shall include any amendment, modification, or successor thereto.
(i) The Parties have participated jointly in the negotiation and drafting of this Agreement, and in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision hereof.
ARTICLE II — ESTABLISHMENT OF ESCROW
Section 2.1 — Deposit of Escrow Amount
(a) On the Closing Date, Parent shall deposit, or cause to be deposited, the Escrow Amount (Sixty-Seven Million Five Hundred Thousand Dollars ($67,500,000)) in immediately available funds by wire transfer to the Escrow Account in accordance with the wire transfer instructions set forth in Exhibit D. The deposit of the Escrow Amount shall be made from the aggregate merger consideration otherwise payable at the Closing, and shall be sourced from draws under the senior secured credit facility of Parent provided by Pinnacle Atlantic Bank, N.A. (in the aggregate principal amount of Five Hundred Million Dollars ($500,000,000)) and from cash on hand of Northgate and its affiliates (in the amount of approximately Two Hundred Fifty Million Dollars ($250,000,000)), as contemplated by the Merger Agreement.
(b) The Escrow Agent shall acknowledge receipt of the Escrow Amount in writing (which may be by email) to Parent and the Stockholder Representative within one (1) Business Day following the Escrow Agent's receipt of such funds. If the Escrow Agent does not receive the Escrow Amount on the Closing Date, the Escrow Agent shall promptly notify Parent and the Stockholder Representative.
(c) For the avoidance of doubt, the deposit of the Escrow Amount into the Escrow Account shall constitute part of the aggregate merger consideration payable to the former stockholders of the Company under the Merger Agreement, and shall be treated for all purposes as having been received by the former stockholders and deposited on their behalf.
Section 2.2 — Escrow Account
(a) The Escrow Agent shall establish and maintain a separate, segregated escrow account at a federally insured depository institution (the "Escrow Account"). The Escrow Account shall be titled as follows:
"Clearfield Escrow Services, Inc., as Escrow Agent — Northgate/Cascadia Indemnification Escrow"
(b) The Escrow Account shall be established under the taxpayer identification number of the Stockholder Representative or under such other taxpayer identification number as may be directed by qualified tax counsel retained by the Parties for this purpose. For reference, the Company's Employer Identification Number is 45-6128937, and the EIN of Northgate's U.S. subsidiary, NTP Acquisition Sub, Inc. (or its successor), is 87-3421056.
(c) The Escrow Agent shall maintain accurate records and accounts of all transactions relating to the Escrow Account, including all deposits, investments, reinvestments, disbursements, and Escrow Earnings. The Escrow Agent shall provide monthly statements to Parent and the Stockholder Representative reflecting the balance of the Escrow Fund, all transactions during such month, and the Escrow Earnings earned during such month. Such statements shall be transmitted by electronic mail or such other method as may be mutually agreed by the Parties.
Section 2.3 — Nature of Escrow Fund
(a) The Escrow Fund shall not be subject to any lien, attachment, levy, garnishment, trustee process, or encumbrance of any kind by any Party hereto or any creditor of any Party, and no Party shall have any right to pledge, hypothecate, assign, or otherwise encumber the Escrow Fund or any portion thereof, except as expressly contemplated by this Agreement.
(b) The Escrow Agent shall hold the Escrow Fund as a trust fund and shall not commingle the Escrow Fund with any other funds held by the Escrow Agent. The Escrow Agent shall not use the Escrow Fund for any purpose other than as expressly set forth herein.
(c) The Escrow Fund shall not be deemed to constitute the property of any single Party for purposes of any bankruptcy, insolvency, receivership, or similar proceeding. The Escrow Agent agrees not to assert any lien, right of set-off, or counterclaim of any nature against the Escrow Fund, except for fees and expenses due and payable to the Escrow Agent under Article VII of this Agreement.
ARTICLE III — INVESTMENT OF ESCROW FUND
Section 3.1 — Permitted Investments
The Escrow Agent shall invest and reinvest the Escrow Fund, as directed in a Joint Written Direction delivered to the Escrow Agent, in one or more of the following categories of investments (collectively, "Permitted Investments"):
(a) Direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, in each case having a remaining maturity of not more than one hundred eighty (180) days from the date of acquisition;
(b) Certificates of deposit or time deposits of any domestic commercial bank that is a member of the Federal Deposit Insurance Corporation and that has combined capital and surplus of not less than One Billion Dollars ($1,000,000,000), in each case having a remaining maturity of not more than one hundred eighty (180) days from the date of acquisition;
(c) Commercial paper issued by any corporation organized under the laws of any state of the United States or the District of Columbia, rated at least A-1 by Standard & Poor's Ratings Services or P-1 by Moody's Investors Service, Inc. (or the equivalent rating by any other nationally recognized statistical rating organization), in each case having a remaining maturity of not more than ninety (90) days from the date of acquisition;
(d) Money market mutual funds that are registered under the Investment Company Act of 1940, as amended, that invest exclusively in the instruments described in clauses (a) through (c) above, and that maintain a net asset value of $1.00 per share; and
(e) Such other investments as Parent and the Stockholder Representative may agree upon from time to time in a Joint Written Direction.
In the absence of a Joint Written Direction providing specific investment instructions, or at any time that the Escrow Agent has not received investment instructions from both Parent and the Stockholder Representative, the Escrow Agent shall invest the Escrow Fund in a money market fund or demand deposit account that constitutes part of Clearfield Escrow Services, Inc.'s standard custodial offering. The Escrow Agent shall have no liability for any investment losses resulting from investment of the Escrow Fund in such standard custodial offering or in any other Permitted Investment selected by the Parties.
Section 3.2 — Income and Losses
(a) All Escrow Earnings shall become part of the Escrow Fund and shall be held, invested, and disbursed in accordance with the terms of this Agreement.
(b) Any losses on investments of the Escrow Fund shall be borne by the Escrow Fund and shall reduce the amount of the Escrow Fund available for distribution hereunder. In no event shall the Escrow Agent have any obligation to restore or replenish the Escrow Fund for any investment losses, nor shall the Escrow Agent be liable to any Party for any losses incurred on Permitted Investments made in accordance with this Agreement and the investment instructions received from the Parties.
(c) The Escrow Agent shall liquidate investments of the Escrow Fund as necessary to make disbursements required hereunder. The Escrow Agent shall not be liable for any loss, penalty, or fee resulting from early liquidation of any investment in order to make a disbursement required by the terms of this Agreement.
Section 3.3 — Tax Reporting
(a) For United States federal and applicable state and local income tax purposes, the Escrow Fund (including all Escrow Earnings) shall be treated as owned by the former stockholders of the Company (through the Stockholder Representative acting on their behalf). The Parties agree that the deposit of the Escrow Amount into the Escrow Account shall be treated for tax purposes as a receipt by the former stockholders of their pro rata share of the Escrow Amount, followed by a deposit by such former stockholders into the Escrow Account.
(b) The Escrow Agent shall report all Escrow Earnings to the Internal Revenue Service on IRS Form 1099 (or such other applicable form as may be required) under the taxpayer identification number of the Stockholder Representative or such other taxpayer identification number as may be provided by the Stockholder Representative or qualified tax counsel. The Escrow Agent shall timely file all required information returns and shall provide copies thereof to the Stockholder Representative.
(c) Each Party shall provide the Escrow Agent with a duly completed and executed IRS Form W-9 (Request for Taxpayer Identification Number and Certification) or, in the case of a non-U.S. person, an applicable IRS Form W-8, prior to or on the Closing Date. For the avoidance of doubt, Parent shall cause its applicable U.S. subsidiary (EIN 87-3421056) to provide such form on its behalf if applicable.
(d) No Party shall take any position on any tax return or in any tax proceeding that is inconsistent with the tax treatment set forth in this Section 3.3, unless otherwise required by a final determination within the meaning of Section 1313 of the Internal Revenue Code of 1986, as amended, or as required by applicable law.
(e) The Stockholder Representative shall be responsible for ensuring that each former stockholder of the Company includes in income his, her, or its pro rata share of Escrow Earnings in accordance with applicable law.
ARTICLE IV — CLAIMS AGAINST ESCROW FUND
Section 4.1 — Claim Notice
(a) Parent may make a claim against the Escrow Fund for indemnifiable Losses under the Merger Agreement by delivering a written notice (each, a "Claim Notice") simultaneously to both the Escrow Agent and the Stockholder Representative in accordance with Section 10.1. A Claim Notice may be delivered at any time prior to the expiration of the applicable survival period for the representation, warranty, covenant, or agreement giving rise to such claim, as set forth in the Merger Agreement and Section 4.2 of this Agreement.
(b) Each Claim Notice shall specify with reasonable particularity:
(i) the specific section(s) of the Merger Agreement giving rise to the indemnification claim and the nature of the breach or inaccuracy alleged;
(ii) a reasonably detailed description of the facts, circumstances, and events forming the basis of the claim, including, to the extent reasonably available to Parent, supporting documentation;
(iii) the dollar amount of Losses claimed (the "Claimed Amount"), or, if the Claimed Amount is not yet reasonably determinable, a good-faith estimate thereof, together with a description of the methodology used to calculate or estimate such amount; and
(iv) whether the claim relates to (A) general representations and warranties, (B) Fundamental Representations, or (C) Tax Representations, together with an identification of the specific representation(s) or warranty(ies) to which the claim relates.
(c) A Claim Notice may be amended or supplemented by Parent at any time by delivering an updated Claim Notice to the Escrow Agent and the Stockholder Representative, provided that any increase in the Claimed Amount shall be subject to the Stockholder Representative's right to respond and dispute in accordance with Section 4.3.
(d) De Minimis Threshold. Consistent with the terms of the Merger Agreement, no individual claim for Losses in an amount less than Two Hundred Fifty Thousand Dollars ($250,000) may be asserted by Parent against the Escrow Fund or included in the calculation of aggregate Losses for purposes of the tipping basket described in clause (e) below.
(e) Basket / Tipping Basket. No amounts shall be distributable from the Escrow Fund to Parent until the aggregate amount of Losses (excluding any individual claims below the de minimis threshold) equals or exceeds Seven Million Five Hundred Thousand Dollars ($7,500,000) (the "Basket"), at which point Parent shall be entitled to recovery of all such Losses from the first dollar (it being understood that the Basket functions as a tipping basket and not as a true deductible, such that once aggregate qualifying Losses exceed the Basket, Parent shall be entitled to indemnification for all such Losses, including those comprising the initial $7,500,000 amount). The Escrow Agent shall have no duty to independently verify whether the de minimis threshold or the Basket has been met and shall be entitled to rely solely on the Claim Notice, Joint Written Directions, and the Stockholder Representative's responses in making any determination regarding disbursements.
Section 4.2 — Limitations on Claims
(a) Escrow Fund Cap. The aggregate amount distributable from the Escrow Fund to Parent pursuant to this Agreement shall not exceed the Escrow Amount (Sixty-Seven Million Five Hundred Thousand Dollars ($67,500,000)), as the same may have been increased by Escrow Earnings and decreased by prior releases to the Stockholder Representative; provided, however, that this limitation on disbursements from the Escrow Fund is without prejudice to Parent's separate right to pursue indemnification claims directly against the former stockholders of the Company (through the Stockholder Representative) for Losses in excess of the Escrow Fund, subject to the Indemnification Cap of One Hundred Thirty-Five Million Dollars ($135,000,000) under the Merger Agreement.
(b) Survival Deadlines. Claims against the Escrow Fund must be asserted by Parent by delivery of a Claim Notice in accordance with Section 4.1 prior to the expiration of the applicable survival deadline:
(i) General representations and warranties: twenty-four (24) months from the Closing Date;
(ii) Fundamental Representations: sixty (60) months from the Closing Date; and
(iii) Tax Representations: until the date that is sixty (60) days after the expiration of the applicable statute of limitations (including any extensions or waivers thereof) with respect to the taxable period to which such Tax Representation relates.
(c) Survival of Timely Asserted Claims. Any claim that is timely asserted by delivery of a Claim Notice prior to the expiration of the applicable survival deadline but that remains unresolved as of such deadline shall survive and continue in full force and effect until such claim is finally resolved in accordance with this Agreement, the Merger Agreement, and applicable law.
Section 4.3 — Response to Claim Notice; Dispute Process
(a) Following receipt of a Claim Notice, the Stockholder Representative shall have a period of thirty (30) calendar days (the "Response Period") to deliver a written response to both the Escrow Agent and Parent. If the last day of the Response Period falls on a day that is not a Business Day, the Response Period shall be extended to the next succeeding Business Day.
(b) Acceptance. If the Stockholder Representative delivers written acceptance of the Claimed Amount (or a specified portion thereof) within the Response Period, the Escrow Agent shall, within five (5) Business Days following receipt of such written acceptance, release the accepted Claimed Amount (or accepted portion thereof) from the Escrow Fund to Parent by wire transfer in accordance with Section 5.3. If the Stockholder Representative fails to deliver any written response within the Response Period, the Stockholder Representative shall be deemed to have accepted the Claim Notice in its entirety, and the Escrow Agent shall, within five (5) Business Days following the expiration of the Response Period, release the full Claimed Amount to Parent by wire transfer in accordance with Section 5.3.
(c) Dispute Notice. If the Stockholder Representative disputes all or any portion of the Claimed Amount, the Stockholder Representative shall deliver a written notice (a "Dispute Notice") to both the Escrow Agent and Parent within the Response Period. Each Dispute Notice shall specify:
(i) the aggregate dollar amount of the Claimed Amount that the Stockholder Representative disputes (the "Disputed Amount");
(ii) the aggregate dollar amount of the Claimed Amount, if any, that the Stockholder Representative does not dispute (the "Undisputed Amount");
(iii) a reasonably detailed description of the basis for the Stockholder Representative's dispute, including the specific factual and legal grounds therefor; and
(iv) any supporting documentation reasonably available to the Stockholder Representative.
(d) Pending the resolution of any Dispute Notice, the Escrow Agent shall continue to hold the Disputed Amount in the Escrow Fund and shall not release such Disputed Amount absent receipt of (i) a Joint Written Direction, or (ii) a final, non-appealable order or judgment of a court of competent jurisdiction directing the disposition of such Disputed Amount. The Escrow Agent shall have no duty or obligation to resolve any dispute between Parent and the Stockholder Representative and shall not be required to take any action with respect to disputed amounts except as expressly provided in this Agreement.
Section 4.4 — Payment of Undisputed Amounts
To the extent that the Stockholder Representative's Dispute Notice identifies an Undisputed Amount (that is, the Dispute Notice disputes only a portion of the Claimed Amount and does not dispute the remainder), the Escrow Agent shall release the Undisputed Amount to Parent by wire transfer in accordance with Section 5.3 within five (5) Business Days following the expiration of the Response Period. The release of an Undisputed Amount shall be without prejudice to the resolution of the Disputed Amount in accordance with this Agreement and the Merger Agreement.
Section 4.5 — Joint Written Directions
(a) The Escrow Agent shall be entitled to rely upon and shall act in accordance with any Joint Written Direction without further inquiry or investigation, and the Escrow Agent shall have no liability for any action taken or omitted in reliance upon a Joint Written Direction.
(b) All releases of the Escrow Fund pursuant to a Joint Written Direction shall be made by the Escrow Agent within three (3) Business Days following the Escrow Agent's receipt of such Joint Written Direction, unless the Joint Written Direction specifies a later release date.
(c) In the event of any conflict between a Joint Written Direction and a prior Claim Notice or Dispute Notice, the Joint Written Direction shall control, and the Escrow Agent shall be entitled to act in accordance therewith.
ARTICLE V — RELEASE OF ESCROW FUND
Section 5.1 — Scheduled Release (General Representations Survival)
(a) On the Escrow Release Date (which is the date that is twenty-four (24) months after the Closing Date), the Escrow Agent shall release to the Stockholder Representative (for further distribution to the former stockholders of the Company through the Paying Agent, Trident Transfer Agency, Inc.) an amount equal to the then-remaining balance of the Escrow Fund, less:
(i) the aggregate Claimed Amounts of all Outstanding Claims (whether disputed or undisputed) pending as of the Escrow Release Date (such aggregate amount, together with any amounts described in clause (ii) below, the "Reserved Amount"); and
(ii) any amounts separately reserved for claims relating to Fundamental Representations or Tax Representations that have a survival period extending beyond the Escrow Release Date, as set forth in Parent's certificate delivered pursuant to Section 5.1(b) below.
(b) Parent shall deliver to the Escrow Agent and the Stockholder Representative, no later than five (5) Business Days prior to the Escrow Release Date, a certificate executed by an authorized representative of Parent (in the form reasonably satisfactory to the Escrow Agent) specifying in reasonable detail:
(i) each Outstanding Claim pending as of such date, including a brief description of such claim and the applicable Claimed Amount;
(ii) any amounts to be reserved for claims relating to Fundamental Representations or Tax Representations with survival periods extending beyond the Escrow Release Date; and
(iii) the aggregate Reserved Amount to be retained in the Escrow Account.
(c) If Parent fails to timely deliver the certificate required by Section 5.1(b) on or before the date that is five (5) Business Days prior to the Escrow Release Date, the Escrow Agent shall release the entire remaining balance of the Escrow Fund to the Stockholder Representative on the Escrow Release Date, and Parent shall be deemed to have waived any right to reserve amounts in the Escrow Fund beyond the Escrow Release Date with respect to general representations and warranties (but not with respect to Fundamental Representations or Tax Representations to the extent claims relating thereto have been timely asserted by Claim Notice prior to the Escrow Release Date).
(d) For the avoidance of doubt, the scheduled release contemplated by this Section 5.1 shall be subject to the Escrow Agent's receipt of all wire transfer instructions and tax documentation necessary to effect such release.
Section 5.2 — Holdback for Outstanding Claims and Extended Survival Claims
(a) The Reserved Amount shall continue to be held in the Escrow Account and invested in accordance with Article III until each Outstanding Claim included in the Reserved Amount is finally resolved, whether by:
(i) a Joint Written Direction executed by Parent and the Stockholder Representative;
(ii) the mutual written agreement of Parent and the Stockholder Representative; or
(iii) a final, non-appealable order or judgment of a court of competent jurisdiction.
(b) Upon the resolution of each Outstanding Claim:
(i) the amount, if any, awarded or agreed to be paid to Parent in connection with such resolved Outstanding Claim shall be released from the Escrow Fund to Parent by wire transfer in accordance with Section 5.3 within five (5) Business Days following such resolution; and
(ii) any remaining amount of the Reserved Amount attributable to such resolved Outstanding Claim that is no longer needed to satisfy such claim (including, without limitation, any excess over the amount finally determined to be owed to Parent) shall be released from the Escrow Fund to the Stockholder Representative by wire transfer in accordance with Section 5.3 within five (5) Business Days following such resolution.
(c) With respect to claims relating to Fundamental Representations (which survive for sixty (60) months from the Closing Date) or Tax Representations (which survive until sixty (60) days after expiration of the applicable statute of limitations, including extensions or waivers), the reserved portion of the Escrow Fund allocable to such claims shall be held in the Escrow Account until the later of (i) the final resolution of all such claims in accordance with this Section 5.2, and (ii) the expiration of the applicable survival period for such Fundamental Representations or Tax Representations, as the case may be. Upon the expiration of the applicable survival period without the assertion of any further claims thereunder, or upon the final resolution of all claims relating to such Fundamental Representations or Tax Representations, any remaining reserved amounts shall be promptly released to the Stockholder Representative.
(d) The "Final Release Date" shall be the date on which (i) no further amounts are required to be reserved in the Escrow Account for Outstanding Claims or for claims with survival periods extending beyond the Escrow Release Date, and (ii) all claims that have been asserted against the Escrow Fund have been finally resolved. On the Final Release Date, the Escrow Agent shall release any remaining balance of the Escrow Fund to the Stockholder Representative by wire transfer in accordance with Section 5.3, and this Agreement shall thereafter terminate in accordance with Section 9.1.
Section 5.3 — Manner of Release
(a) All releases from the Escrow Fund to Parent shall be made by wire transfer of immediately available funds to the bank account designated by Parent in writing to the Escrow Agent, in accordance with the wire transfer instructions set forth in Exhibit D (or as updated from time to time by written notice from Parent's authorized representatives to the Escrow Agent).
(b) All releases from the Escrow Fund to the Stockholder Representative shall be made by wire transfer of immediately available funds to the bank account designated by the Stockholder Representative in writing to the Escrow Agent. It is expected that the designated account for releases to the Stockholder Representative shall be the account of Trident Transfer Agency, Inc., 480 Washington Boulevard, Jersey City, New Jersey 07310, for further pro rata distribution to the former stockholders of the Company in accordance with the terms of the Merger Agreement and the Stockholder Representative Agreement. The applicable wire transfer instructions are set forth in Exhibit D (or as updated from time to time by written notice from the Stockholder Representative's authorized representatives to the Escrow Agent).
(c) Prior to effecting any wire transfer, the Escrow Agent shall confirm all wire transfer instructions by telephone callback to the authorized representatives of the applicable recipient Party at the telephone numbers set forth in Schedule 1 (or as updated from time to time by written notice in accordance with Section 10.2). The Escrow Agent shall not be liable for any delay in releasing funds resulting from the Escrow Agent's compliance with its callback verification procedures.
Section 5.4 — Partial Releases by Joint Written Direction
At any time during the term of this Agreement, Parent and the Stockholder Representative may jointly instruct the Escrow Agent, by delivery of a Joint Written Direction in accordance with Section 4.5 and in the form attached as Exhibit C, to release any portion of the Escrow Fund (including Escrow Earnings) to either Parent, the Stockholder Representative, or a designated third party, and the Escrow Agent shall make such release within three (3) Business Days of receipt of such Joint Written Direction, subject to the callback verification procedures set forth in Section 5.3(c). Any such partial release shall reduce the Escrow Fund by the amount so released.
ARTICLE VI — ESCROW AGENT
Section 6.1 — Duties and Responsibilities
(a) The Escrow Agent undertakes to perform only such duties as are expressly set forth in this Agreement and no implied duties or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent shall have no duty to enforce any obligation of any Person to make any payment or delivery, or to direct or cause any payment or delivery to be made, or to enforce any obligation of any Person to perform any other act.
(b) The Escrow Agent shall not be required to make any determination regarding the merits or validity of any claim asserted by Parent or any dispute raised by the Stockholder Representative, and shall not be deemed to have knowledge of, or be responsible for, any breach or default under the Merger Agreement.
(c) The Escrow Agent shall not be deemed a fiduciary or trustee with respect to either Parent or the Stockholder Representative, except to the extent that the Escrow Agent's duty to hold the Escrow Fund in trust pursuant to Section 2.3 creates a limited trust relationship with respect to the safekeeping and disbursement of the Escrow Fund. The Escrow Agent's duties are purely ministerial in nature.
Section 6.2 — Reliance
The Escrow Agent shall be entitled to rely upon, and shall be protected in acting or refraining from acting upon:
(a) any written notice, instruction, certificate, request, direction, consent, or other document or instrument that the Escrow Agent believes in good faith to be genuine, to have been duly authorized, and to have been signed or delivered by the proper Person or Persons;
(b) the advice or opinions of legal counsel (which may be counsel to the Escrow Agent), accountants, or other professional advisors retained or consulted by the Escrow Agent in connection with its duties hereunder;
(c) any Joint Written Direction delivered in accordance with the terms of this Agreement; and
(d) any court order, judgment, or decree issued by a court of competent jurisdiction that, on its face, purports to be final and non-appealable.
The Escrow Agent shall not be liable for any action taken or omitted in good faith in reliance on any of the foregoing, and the Escrow Agent shall have no responsibility to independently verify the accuracy, authenticity, or validity of any document, instruction, or notice delivered to it.
Section 6.3 — Limitation of Liability
(a) The Escrow Agent shall not be liable for any act or omission hereunder, or for any loss, cost, expense, or damage arising out of or in connection with the performance of its duties hereunder, except in the case of the Escrow Agent's own gross negligence, willful misconduct, or bad faith, as determined by a final, non-appealable judgment of a court of competent jurisdiction.
(b) Without limiting the generality of the foregoing, the Escrow Agent shall not be liable for:
(i) any loss arising from the investment or reinvestment of the Escrow Fund in Permitted Investments made in accordance with the terms of this Agreement;
(ii) any loss arising from the default or insolvency of any financial institution at which the Escrow Fund is deposited or invested, to the extent such deposits or investments were made in accordance with this Agreement;
(iii) any delay in performing its duties hereunder caused by circumstances beyond the Escrow Agent's reasonable control, including acts of God, fire, flood, war, terrorism, civil disturbance, governmental action, or interruption of transportation, communication, or power supply; or
(iv) any act or omission of any predecessor or successor escrow agent.
(c) In no event shall the Escrow Agent be liable for any special, indirect, incidental, consequential, exemplary, or punitive damages of any kind whatsoever (including lost profits), regardless of the form of action and whether or not any such damages are foreseeable.
(d) The Escrow Agent shall not be obligated to take any legal action or commence any proceeding in connection with the Escrow Fund, any account in which the Escrow Fund is deposited, this Agreement, or any transaction contemplated hereby.
Section 6.4 — Right to Counsel
The Escrow Agent may, at any time and from time to time, consult with legal counsel of its own choosing (who need not be counsel to either Parent or the Stockholder Representative) with respect to any question or matter arising in connection with this Agreement or the Escrow Agent's duties hereunder. The reasonable fees and disbursements of such counsel shall constitute an expense reimbursable to the Escrow Agent pursuant to Section 7.2. The Escrow Agent shall be fully protected and shall incur no liability for any action taken, suffered, or omitted by it in good faith in accordance with the advice of such counsel.
Section 6.5 — Resignation; Removal
(a) Resignation. The Escrow Agent may resign from its duties hereunder at any time upon not less than thirty (30) days' prior written notice to Parent and the Stockholder Representative. Such resignation shall take effect upon the appointment of a successor escrow agent and the transfer of the Escrow Fund to such successor as provided herein, or on the date otherwise determined in accordance with this Section 6.5.
(b) Removal. Parent and the Stockholder Representative may jointly remove the Escrow Agent at any time upon not less than thirty (30) days' prior written notice to the Escrow Agent, with or without cause. Such removal shall take effect upon the appointment of a successor escrow agent and the transfer of the Escrow Fund to such successor as provided herein.
(c) Appointment of Successor. In the event of the resignation or removal of the Escrow Agent, Parent and the Stockholder Representative shall jointly appoint a successor escrow agent within thirty (30) days following the effective date of such resignation or removal by delivering a Joint Written Direction to the resigning or removed Escrow Agent identifying the successor and providing the successor's wire transfer instructions. The successor escrow agent shall execute a written instrument accepting the appointment and agreeing to be bound by the terms of this Agreement.
(d) Failure to Appoint Successor. If Parent and the Stockholder Representative fail to jointly appoint a successor escrow agent within thirty (30) days following the effective date of the Escrow Agent's resignation or removal, the Escrow Agent may, in its sole discretion, (i) petition any court of competent jurisdiction sitting in the State of New York, Borough of Manhattan, City of New York, for the appointment of a successor escrow agent, or (ii) deposit the Escrow Fund with the clerk of such court. In either event, upon such deposit or appointment, the Escrow Agent shall be discharged from all duties and obligations under this Agreement.
(e) Transfer to Successor. Upon the appointment of a successor escrow agent and the delivery of the Escrow Fund to such successor, the resigning or removed Escrow Agent shall be fully discharged from all duties, obligations, and liabilities under this Agreement arising after the date of such transfer, subject to the survival of the provisions of Section 6.3 and Section 7.3 with respect to acts or omissions occurring prior to such transfer.
Section 6.6 — Interpleader
In the event of any disagreement or dispute between or among Parent and the Stockholder Representative (or any other Person) resulting in adverse claims or demands being made upon the Escrow Agent with respect to the proper disposition of the Escrow Fund, or if the Escrow Agent is otherwise uncertain as to the proper action to be taken hereunder, the Escrow Agent shall be entitled, in its sole and absolute discretion, to (a) refuse to comply with any and all claims, demands, or instructions with respect to the Escrow Fund so long as such disagreement or dispute continues, and the Escrow Agent shall not be or become liable in any way to any Person for its failure or refusal to act, or (b) interplead the Escrow Fund into any court of competent jurisdiction sitting in the State of New York, Borough of Manhattan, City of New York, and upon doing so shall thereupon be fully discharged from all further duties, obligations, and liabilities under this Agreement with respect to the Escrow Fund so deposited. The filing of any such interpleader action shall not deprive the Escrow Agent of its compensation and reimbursement of expenses hereunder, and the Escrow Agent shall be entitled to deduct from the Escrow Fund the costs and expenses (including reasonable attorneys' fees) of such interpleader action prior to any such deposit with the court. Parent and the Stockholder Representative jointly and severally agree to reimburse the Escrow Agent for any such costs and expenses to the extent the Escrow Fund is insufficient to cover such amounts.
ARTICLE VII — COMPENSATION AND INDEMNIFICATION OF ESCROW AGENT
Section 7.1 — Compensation
(a) The Escrow Agent shall be entitled to compensation for its services hereunder in accordance with the fee schedule attached hereto as Exhibit A and incorporated herein by reference, as may be amended from time to time by mutual agreement of the Parties. The annual escrow administration fee shall be as set forth on Exhibit A and shall be payable in advance on each anniversary of the Effective Date (or, with respect to the first year, on the Effective Date).
(b) Unless otherwise agreed by Parent and the Stockholder Representative in writing, the Escrow Agent's fees and expenses payable under this Article VII shall be borne fifty percent (50%) by Parent and fifty percent (50%) by the Stockholder Representative (the Stockholder Representative's share to be deducted from the Escrow Fund to the extent not otherwise paid). If the Stockholder Representative's share of any fee or expense is to be deducted from the Escrow Fund, the Escrow Agent shall provide at least ten (10) Business Days' prior written notice to both Parent and the Stockholder Representative before making any such deduction.
Section 7.2 — Expense Reimbursement
In addition to the fees payable under Section 7.1, the Escrow Agent shall be entitled to reimbursement from the Parties for all reasonable and documented out-of-pocket expenses incurred in connection with the performance of its duties hereunder, including, without limitation, reasonable fees and disbursements of legal counsel retained by the Escrow Agent pursuant to Section 6.4, wire transfer fees, courier charges, postage, and other administrative expenses. Such expenses shall be allocated between Parent and the Stockholder Representative (with the Stockholder Representative's share payable from the Escrow Fund) in the same proportions as set forth in Section 7.1(b), unless the Parties otherwise agree in writing.
Section 7.3 — Indemnification of Escrow Agent
(a) Parent and the Stockholder Representative (the latter solely from the Escrow Fund, and not in his individual or personal capacity) shall jointly and severally indemnify, defend, and hold harmless the Escrow Agent and its directors, officers, employees, agents, and representatives (collectively, the "Escrow Agent Indemnitees") from and against any and all losses, claims, damages, liabilities, penalties, judgments, settlements, actions, suits, proceedings, investigations, and reasonable expenses (including reasonable attorneys' fees and disbursements) (collectively, "Escrow Agent Losses") arising out of or in connection with the Escrow Agent's acceptance of its appointment or the performance or non-performance of its duties hereunder, including any Escrow Agent Losses arising from any act or omission by the Escrow Agent in reliance upon any written notice, instruction, certificate, or document delivered to it under this Agreement, except to the extent that such Escrow Agent Losses are finally determined by a court of competent jurisdiction (in a final, non-appealable judgment) to have resulted directly from the Escrow Agent's own gross negligence, willful misconduct, or bad faith.
(b) The indemnification obligations set forth in this Section 7.3 shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement.
(c) Without limiting the generality of the foregoing, the Escrow Agent shall be entitled to deduct from the Escrow Fund, after providing at least ten (10) Business Days' prior written notice to Parent and the Stockholder Representative, any amounts owed to it for fees, expenses, or indemnification under this Article VII that are not otherwise paid when due; provided, however, that no such deduction shall be made from any portion of the Escrow Fund that constitutes a Reserved Amount without the prior written consent of Parent (which consent shall not be unreasonably withheld, conditioned, or delayed).
ARTICLE VIII — DISPUTE RESOLUTION
Section 8.1 — Negotiation
In the event of any dispute, controversy, or claim between Parent and the Stockholder Representative arising out of or relating to the Escrow Fund, the terms of this Agreement, or the respective rights and obligations of the Parties hereunder (other than a dispute as to the Escrow Agent's duties, which shall be governed by the provisions of Article VI), the disputing Parties shall first attempt in good faith to resolve such dispute through direct negotiation between senior representatives of Parent and the Stockholder Representative for a period of thirty (30) days following written notice from either such Party to the other specifying the nature of the dispute in reasonable detail (the "Negotiation Period"). During the Negotiation Period, the Escrow Agent shall continue to hold the disputed portion of the Escrow Fund in the Escrow Account and shall not be required to take any action with respect to such dispute.