CONFIDENTIAL — DRAFT FORM — NOT FOR EXECUTION
EXHIBIT E
to the
AGREEMENT AND PLAN OF MERGER
FORM OF ESCROW AGREEMENT
Exhibit E to the Agreement and Plan of Merger
This is a form agreement. Bracketed items and blanks are to be completed at or prior to the Closing Date. All bracketed placeholders (denoted by "[Insert …]") reflect items to be negotiated and finalized by the parties in connection with the execution and delivery of this Escrow Agreement at the Closing. Parties and their respective counsel should review all bracketed provisions carefully and conform them to the final terms of the Merger Agreement and related transaction documents prior to execution.
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ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of [\\\\\\\\\_], 2024 (the "Effective Date"), by and among:
(1) [Insert full legal name of acquiring fund entity], a Delaware limited partnership (together with its successors and permitted assigns, "Parent"), having its principal office at [Insert address];
(2) [Insert full legal name of escrow agent], a [Insert jurisdiction] trust company (the "Escrow Agent"), having its principal corporate trust office at [Insert address]; and
(3) [Insert name of appointed stockholder representative], acting solely in the capacity of Stockholder Representative (the "Stockholder Representative") pursuant to that certain Stockholder Representative Agreement dated as of [Insert date] (the "Stockholder Representative Agreement"), with a notice address at [Insert address].
Each of Parent, the Escrow Agent, and the Stockholder Representative is sometimes referred to herein individually as a "Party" and collectively as the "Parties."
RECITALS
WHEREAS, [Insert target entity name], a [Insert jurisdiction of organization] corporation (the "Company"), [Insert merger subsidiary name], a [Insert jurisdiction of organization] corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and Parent have entered into that certain Agreement and Plan of Merger, dated as of [Insert signing date] (as it may be amended, supplemented, or otherwise modified from time to time in accordance with its terms, 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 (the "Surviving Corporation"), and the shares of common stock and other equity interests of the Company outstanding immediately prior to the effective time of the Merger will be converted into the right to receive the Merger Consideration (as defined in the Merger Agreement), all upon the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, the Merger Agreement provides, as a condition to the consummation of the transactions contemplated thereby (the "Closing"), that Parent shall cause to be deposited with the Escrow Agent an amount in cash equal to [Insert escrow amount] (the "Escrow Amount"), representing [Insert percentage]% of the aggregate Merger Consideration payable pursuant to the Merger Agreement, which Escrow Amount shall be held, invested, and disbursed by the Escrow Agent in accordance with the terms and conditions of this Agreement, and shall serve to secure the indemnification obligations of the former stockholders of the Company (the "Former Stockholders") as set forth in [Insert Article reference] of the Merger Agreement;
WHEREAS, the Stockholder Representative has been duly appointed by the Former Stockholders to act on their behalf, and in their stead, with respect to all matters arising under or in connection with this Agreement, the Merger Agreement, and the Stockholder Representative Agreement, including the authority to execute and deliver this Agreement, to give and receive all notices, instructions, and communications hereunder, to agree to, negotiate, and enter into settlements and compromises of indemnification claims, and to take all actions necessary or appropriate in connection therewith, all as more fully set forth in the Stockholder Representative Agreement dated as of [Insert date];
WHEREAS, the Escrow Agent has agreed to accept, hold, invest, and disburse the Escrow Amount, together with all interest, dividends, and other income earned thereon, in accordance with the terms and conditions set forth in this Agreement; and
WHEREAS, the Parties desire to set forth the terms and conditions governing the establishment, administration, investment, and disbursement of the Escrow Fund (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I — DEFINITIONS
Section 1.1 — Defined Terms
Capitalized terms used but not otherwise defined in this Agreement shall have the respective meanings ascribed to such terms in the Merger Agreement. 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 other day on which commercial banks in New York, New York are authorized or required by Law to close.
"Claim Notice" has the meaning set forth in Section 4.1(a).
"Claimed Amount" has the meaning set forth in Section 4.1(a).
"Closing Date" means the date on which the Closing occurs under and as defined in the Merger Agreement.
"Escrow Account" means the segregated escrow account established and maintained by the Escrow Agent pursuant to Section 2.2 for the purpose of holding and administering the Escrow Fund.
"Escrow Amount" means the amount of $[Insert amount] deposited with the Escrow Agent pursuant to Section 2.1.
"Escrow Fund" means the Escrow Amount, together with all interest, dividends, and other income earned thereon (including any proceeds of Permitted Investments), less any distributions, disbursements, and payments made from the Escrow Account in accordance with the terms of this Agreement.
"Escrow Period" means the period commencing on the Closing Date and ending on the date on which the entire Escrow Fund has been disbursed in accordance with the provisions of this Agreement and the Escrow Account has been closed.
"Final Release Date" means the date that is [Insert number] months following the Closing Date, which date corresponds to the expiration of the Survival Period under the Merger Agreement.
"First Release Date" means the date that is [Insert number] months following the Closing Date.
"Former Stockholders" means the holders of shares of common stock and other equity interests of the Company immediately prior to the effective time of the Merger who became entitled to receive a portion of the Merger Consideration pursuant to the Merger Agreement.
"Indemnification Cap" means $[Insert amount], being [Insert percentage]% of the aggregate Merger Consideration, as defined and set forth in the Merger Agreement.
"Joint Written Instructions" means written instructions that are signed by both an authorized representative of Parent and the Stockholder Representative (or, in each case, their respective designees as set forth on Schedule C hereto) and delivered to the Escrow Agent in accordance with the notice provisions of Section 9.1.
"Merger Agreement" has the meaning set forth in the Recitals.
"Merger Consideration" has the meaning ascribed to such term in the Merger Agreement.
"Pending Claims" means, as of any date of determination, any claims for indemnification that have been asserted by Parent pursuant to the Merger Agreement by delivery of a Claim Notice to the Escrow Agent and the Stockholder Representative in accordance with Section 4.1(a) but that have not been finally resolved (whether by agreement of the parties, by arbitration award, or by final, non-appealable order of a court of competent jurisdiction) as of such date.
"Permitted Investments" has the meaning set forth in Section 3.2.
"R&W Insurance Policy" means the buyer-side representation and warranty insurance policy obtained by Parent in connection with the Merger, Policy No. [Insert policy number], issued by [Insert carrier name], as such policy may be amended, supplemented, or otherwise modified from time to time.
"Release Certificate" has the meaning set forth in Section 4.2(c).
"Resolved Amount" means the portion of any Pending Claim that has been finally resolved, whether by mutual agreement of Parent and the Stockholder Representative as reflected in Joint Written Instructions, by a final arbitration award, or by a final, non-appealable order of a court of competent jurisdiction, and the amount, if any, payable to Parent or returnable to the Stockholder Representative (for the benefit of the Former Stockholders) in connection with such resolution.
"Response Notice" has the meaning set forth in Section 4.1(b).
"Response Period" has the meaning set forth in Section 4.1(b).
"Stockholder Representative" has the meaning set forth in the Preamble.
"Stockholder Representative Agreement" has the meaning set forth in the Preamble.
"Survival Period" means the period of [Insert number] months following the Closing Date during which the representations and warranties of the Company set forth in the Merger Agreement survive the Closing, as set forth in [Insert Section reference] of the Merger Agreement.
Section 1.2 — Interpretation
(a) 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.
(b) Whenever the words "include," "includes," or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation."
(c) Words in the singular shall be deemed to include the plural and vice versa, and words of one gender shall be deemed to include the other genders, as the context requires.
(d) The terms "herein," "hereof," "hereby," "hereto," and "hereunder" refer to this Agreement as a whole.
(e) Unless the context otherwise requires, references to Articles, Sections, and Schedules shall be deemed references to Articles and Sections of, and Schedules to, this Agreement.
(f) Unless the context otherwise requires, references to any agreement or other instrument shall be deemed references to such agreement or instrument as amended, supplemented, restated, or otherwise modified from time to time in accordance with its terms.
(g) References to any law, statute, or regulation shall be deemed references to such law, statute, or regulation as amended from time to time, and shall include all rules and regulations promulgated thereunder.
(h) References to "$" or "dollars" shall mean United States dollars.
(i) The Parties have participated jointly in the negotiation and drafting of this Agreement, and in the event of any ambiguity or question of intent or interpretation, 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 of the provisions of this Agreement.
ARTICLE II — ESTABLISHMENT OF ESCROW; DEPOSIT
Section 2.1 — Deposit of Escrow Amount
On the Closing Date, concurrently with the consummation of the Merger, Parent shall cause to be deposited with the Escrow Agent, by wire transfer of immediately available funds in United States dollars, an amount equal to $[Insert escrow amount] (the "Escrow Amount"). Such wire transfer shall be made to the account designated by the Escrow Agent on Schedule A attached hereto and incorporated herein by reference. The Escrow Agent shall acknowledge receipt of the Escrow Amount in writing (which may be by electronic mail) to each of Parent and the Stockholder Representative promptly, and in any event within one (1) Business Day, following receipt thereof. The Escrow Agent shall have no obligation to accept any deposit other than as described in this Section 2.1 and shall have no duty to solicit the deposit of the Escrow Amount or to confirm the sufficiency of the amount deposited.
Section 2.2 — Escrow Account
(a) The Escrow Agent shall hold the Escrow Amount, and all interest, dividends, and other income earned thereon, in a segregated escrow account (the "Escrow Account") established and maintained by the Escrow Agent at its corporate trust office. The Escrow Agent shall not commingle the Escrow Fund with any other funds or assets held by or on deposit with the Escrow Agent, whether for its own account or for the account of any other person.
(b) The Escrow Account shall be titled "[Insert acquiring entity name] / [Insert target entity name] Indemnity Escrow" or such other title as may be mutually agreed upon by the Parties.
(c) The Escrow Account shall be established under the Employer Identification Number (EIN) of [Insert party whose EIN will be used — typically the Stockholder Representative on behalf of the Former Stockholders, EIN: [Insert EIN]]. The Stockholder Representative shall furnish to the Escrow Agent a completed and executed IRS Form W-9 (or applicable successor form) reflecting such tax identification number on or prior to the Effective Date.
Section 2.3 — Purpose of Escrow
(a) The Escrow Fund shall serve as the exclusive source of payment (subject to the limitations and qualifications set forth herein and in the Merger Agreement) for indemnification obligations of the Former Stockholders arising under [Insert Article reference] of the Merger Agreement with respect to Losses (as defined in the Merger Agreement) suffered or incurred by Parent, the Surviving Corporation, and the other Indemnified Persons (as defined in the Merger Agreement).
(b) The Escrow Fund shall constitute the first source of recovery by Parent and the other Indemnified Persons for Losses prior to any claim under the R&W Insurance Policy. Parent shall not be permitted to submit a claim under the R&W Insurance Policy for Losses that are recoverable from the Escrow Fund until such time as the Escrow Fund has been exhausted or until such time as the Escrow Agent has declined to disburse amounts from the Escrow Fund with respect to a particular claim in accordance with the terms of this Agreement.
(c) Nothing in this Agreement shall limit, modify, or otherwise affect Parent's right to pursue claims under the R&W Insurance Policy for amounts in excess of the Escrow Fund or for Losses that are not recoverable from the Escrow Fund, subject in all cases to the terms, conditions, and limitations of such policy. The R&W Insurance Policy is a separate contract between Parent (as the named insured) and the issuer thereof, and the Escrow Agent and the Stockholder Representative shall have no rights or obligations thereunder.
ARTICLE III — INVESTMENT OF ESCROW FUND
Section 3.1 — Investment Direction
(a) The Escrow Agent shall invest and reinvest the Escrow Fund (or any portion thereof) in Permitted Investments as directed in Joint Written Instructions delivered to the Escrow Agent from time to time during the Escrow Period. Any Joint Written Instructions directing an investment of the Escrow Fund must be received by the Escrow Agent at least [Insert number] Business Days prior to the desired investment date. The Escrow Agent shall not be required to invest or reinvest the Escrow Fund on the date of deposit if such deposit is received after 2:00 p.m. (Eastern Time) on such date; in such event, the Escrow Agent shall invest such funds on the next succeeding Business Day.
(b) In the absence of Joint Written Instructions directing the investment of the Escrow Fund, the Escrow Agent shall invest and reinvest the Escrow Fund in the default investment specified in Section 3.3.
(c) The Escrow Agent shall have no responsibility for any investment losses resulting from investments made in Permitted Investments in accordance with Joint Written Instructions or in accordance with Section 3.3, including any losses resulting from the liquidation of any investment prior to maturity in order to make a disbursement required under this Agreement.
Section 3.2 — Permitted Investments
The term "Permitted Investments" means any of the following:
(a) Direct obligations of the United States of America, or obligations the principal of and interest on which are unconditionally guaranteed by the full faith and credit of the United States of America, in each case maturing within [Insert number] days of the date of acquisition thereof;
(b) Shares of money market mutual funds that are registered under the Investment Company Act of 1940, as amended, and that maintain a stable net asset value of $1.00 per share, and that are rated not less than [Insert minimum rating, e.g., "AAAm" or "Aaa-mf"] by Standard & Poor's Ratings Services, a division of S&P Global Inc., or the equivalent rating by Moody's Investors Service, Inc.;
(c) Certificates of deposit, time deposits, or bankers' acceptances issued by any commercial bank organized under the laws of the United States of America or any state thereof that has (i) combined capital and surplus of at least $[Insert threshold amount, e.g., $500,000,000] and (ii) a long-term unsecured debt rating of at least [Insert minimum rating, e.g., "A"] from Standard & Poor's Ratings Services or the equivalent rating from Moody's Investors Service, Inc., in each case maturing within [Insert number] days of the date of acquisition thereof;
(d) Commercial paper issued by any corporation organized under the laws of any state of the United States of America, rated not less than [Insert minimum rating, e.g., "A-1"] by Standard & Poor's Ratings Services or [Insert minimum rating, e.g., "P-1"] by Moody's Investors Service, Inc., and maturing within [Insert number] days of the date of acquisition thereof; and
(e) Such other investments as Parent and the Stockholder Representative may jointly direct in Joint Written Instructions.
Section 3.3 — Default Investment
In the absence of Joint Written Instructions directing the investment of the Escrow Fund (or any uninvested portion thereof), the Escrow Agent shall invest and reinvest the Escrow Fund in [Insert default money market fund or investment vehicle, e.g., "the [Name of Money Market Fund], CUSIP No. [Insert CUSIP], or such successor or replacement fund as the Escrow Agent may designate from time to time"]. The Parties acknowledge that such default investment may not generate any positive return and that the Escrow Agent shall have no liability for any loss of principal or failure to earn a return on the Escrow Fund invested in the default investment.
Section 3.4 — Tax Treatment of Investment Income
(a) All interest, dividends, and other income earned on the Escrow Fund shall be allocated, for United States federal, state, and local income tax purposes, to the Former Stockholders (and shall be reported through the Stockholder Representative) in accordance with Section 6.1. The Parties intend that, for United States federal income tax purposes, the Escrow Amount shall be treated as owned by the Former Stockholders as deferred purchase price consideration, with the Escrow Agent treated as agent for the Former Stockholders with respect to the Escrow Fund, and the investment income earned thereon shall be taxable to the Former Stockholders in the taxable year in which such income is earned, regardless of when such income is actually distributed.
(b) The Escrow Agent shall report all income earned on the Escrow Fund on IRS Form 1099 (or any applicable successor form) under the tax identification number provided for the Escrow Account pursuant to Section 2.2(c). The Escrow Agent shall deliver or cause to be delivered to the Stockholder Representative (and, upon request, to Parent) copies of all such tax information reports and any other tax-related reports prepared by the Escrow Agent with respect to the Escrow Fund in a timely manner.
Section 3.5 — Risk of Loss
The Escrow Agent shall not be liable for any depreciation in value of, or any loss on, any Permitted Investment, or for any loss resulting from the liquidation of any Permitted Investment prior to its maturity in order to make a disbursement required under this Agreement, except to the extent that any such loss is directly caused by the Escrow Agent's own gross negligence, willful misconduct, or fraud. The Parties acknowledge that the Escrow Agent is not providing investment advice and has no fiduciary duty with respect to the investment of the Escrow Fund.
ARTICLE IV — DISBURSEMENT OF ESCROW FUND
Section 4.1 — Claims Against the Escrow Fund
(a) Claim Notice. Parent may make a claim against the Escrow Fund by delivering to the Escrow Agent and the Stockholder Representative a written notice (a "Claim Notice") specifying in reasonable detail:
(i) the nature and basis of the claim, including a description of the facts and circumstances giving rise to the claim;
(ii) the specific representations, warranties, covenants, or agreements in the Merger Agreement that are alleged to have been breached or with respect to which indemnification is sought;
(iii) the estimated aggregate amount of Losses incurred or reasonably expected to be incurred by the Indemnified Persons in connection with such claim (such amount, the "Claimed Amount"), together with reasonable supporting documentation to the extent then available; and
(iv) whether the claim relates to a Third-Party Claim (as defined in the Merger Agreement) or a direct claim asserted by Parent or any other Indemnified Person.
A Claim Notice must be delivered to the Escrow Agent and the Stockholder Representative on or prior to the expiration of the Survival Period (i.e., on or before the Final Release Date) in order to be a valid claim against the Escrow Fund; provided, however, that any Claim Notice delivered with respect to a claim for which the underlying facts or circumstances first arose or were discovered prior to the expiration of the Survival Period shall be timely if delivered within a reasonable time after discovery thereof. For the avoidance of doubt, individual claims with a Claimed Amount less than $[Insert de minimis threshold] shall not be eligible for recovery from the Escrow Fund, consistent with the de minimis threshold set forth in [Insert Section reference] of the Merger Agreement, it being understood that such claims shall not count toward satisfaction of the aggregate indemnification basket described in Section 4.1(e).
(b) Response Period. Within [Insert number] Business Days following receipt of a Claim Notice by the Stockholder Representative (such period, the "Response Period"), the Stockholder Representative may deliver to the Escrow Agent and Parent a written response (a "Response Notice") indicating either:
(i) that the Stockholder Representative agrees with the Claim Notice, in whole or in part, and specifying the amount (the "Agreed Amount") with respect to which the Stockholder Representative agrees that Parent is entitled to a disbursement from the Escrow Fund; or
(ii) that the Stockholder Representative disputes the Claim Notice, in whole or in part, specifying in reasonable detail the basis for such dispute and the amount that is disputed (the "Disputed Amount").
A Response Notice may agree with a portion of the Claimed Amount and dispute the remainder, in which case the provisions of Section 4.1(c) shall apply to the Agreed Amount and the provisions of Section 4.1(d) shall apply to the Disputed Amount.
(c) Undisputed Claims. If the Stockholder Representative does not deliver a valid Response Notice to the Escrow Agent and Parent within the Response Period, the Stockholder Representative shall be deemed to have irrevocably accepted the Claim Notice and the Claimed Amount set forth therein, and the Escrow Agent shall, within [Insert number] Business Days following the expiration of the Response Period, disburse to Parent from the Escrow Fund an amount equal to the Claimed Amount set forth in such Claim Notice (or, if the Escrow Fund is insufficient to satisfy the Claimed Amount in full, the entire remaining balance of the Escrow Fund). If the Stockholder Representative delivers a Response Notice agreeing with the Claim Notice in whole, or agreeing with a portion of the Claimed Amount, the Escrow Agent shall, within [Insert number] Business Days following receipt of such Response Notice, disburse to Parent from the Escrow Fund an amount equal to the Agreed Amount specified in such Response Notice (or, if the Escrow Fund is insufficient to satisfy the Agreed Amount in full, the entire remaining balance of the Escrow Fund). The Escrow Agent shall be entitled to rely conclusively on the deemed acceptance or the Response Notice, as applicable, and shall have no obligation to independently verify the validity or accuracy of any Claim Notice or Response Notice.
(d) Disputed Claims. If the Stockholder Representative delivers a Response Notice disputing all or a portion of a Claim Notice, the Disputed Amount (or, if the entire Claimed Amount is disputed, the full Claimed Amount) shall remain in the Escrow Fund pending resolution of such dispute. The disputed claim shall be resolved in accordance with Article VII (Dispute Resolution) of this Agreement or the dispute resolution provisions of the Merger Agreement, as applicable. Upon final resolution of any disputed claim, the Escrow Agent shall, promptly following receipt of Joint Written Instructions or a certified copy of a final, non-appealable order or judgment of a court of competent jurisdiction (or a final arbitration award, as applicable):
(i) disburse the Resolved Amount (or applicable portion thereof) to Parent from the Escrow Fund, to the extent the resolution determines that Parent is entitled to indemnification; and/or
(ii) release the Resolved Amount (or applicable portion thereof) to the Stockholder Representative (for distribution pro rata to the Former Stockholders) from the Escrow Fund, to the extent the resolution determines that the Stockholder Representative is entitled to the return of such amount.
If the Escrow Fund is insufficient to satisfy any Resolved Amount payable to Parent, the Escrow Agent shall disburse to Parent the entire remaining balance of the Escrow Fund, and Parent's sole recourse for any deficiency shall be as set forth in the Merger Agreement and the R&W Insurance Policy.
(e) Basket. Claims against the Escrow Fund shall be subject to the aggregate indemnification basket set forth in the Merger Agreement (i.e., $[Insert basket amount], which basket operates as a tipping basket such that, once the aggregate amount of Losses exceeds the basket, the Indemnified Persons shall be entitled to indemnification for the full amount of such Losses from the first dollar, and not as a true deductible). Notwithstanding the foregoing, the Escrow Agent shall not be required to determine or verify whether the basket has been met or exceeded; the Escrow Agent shall disburse amounts from the Escrow Fund solely upon receipt of Joint Written Instructions, upon deemed acceptance pursuant to Section 4.1(c), or pursuant to a final, non-appealable court order or arbitration award. The responsibility for applying and enforcing the basket and other limitations on indemnification set forth in the Merger Agreement shall rest solely with Parent and the Stockholder Representative, and the Escrow Agent shall have no liability in connection therewith.
Section 4.2 — Scheduled Releases
(a) First Release. On the First Release Date (the date that is [Insert number] months following the Closing Date), the Escrow Agent shall release from the Escrow Fund to the Stockholder Representative (for distribution pro rata to the Former Stockholders in accordance with their respective Pro Rata Shares, as defined in the Merger Agreement) an amount (the "First Release Amount") equal to:
(A) [Insert percentage]% of the original Escrow Amount (i.e., $[Insert first release amount]);
minus
(B) the aggregate Claimed Amount of all Pending Claims as of the First Release Date;
minus
(C) the aggregate amount of all prior disbursements made to Parent from the Escrow Fund in satisfaction of resolved indemnification claims.
If the First Release Amount as calculated pursuant to the foregoing formula is zero or a negative number, no release shall be made on the First Release Date, and the entire Escrow Fund shall continue to be held by the Escrow Agent in accordance with the terms of this Agreement.
(b) Final Release. On the Final Release Date (the date that is [Insert number] months following the Closing Date, corresponding to the expiration of the Survival Period under the Merger Agreement), the Escrow Agent shall release from the Escrow Fund to the Stockholder Representative (for distribution pro rata to the Former Stockholders in accordance with their respective Pro Rata Shares) an amount (the "Final Release Amount") equal to:
(A) the entire remaining balance of the Escrow Fund as of the Final Release Date;
minus
(B) the aggregate Claimed Amount of all Pending Claims as of the Final Release Date;
minus
(C) the aggregate amount of all prior disbursements made to Parent from the Escrow Fund in satisfaction of resolved indemnification claims (to the extent not already accounted for in the remaining balance).
Any amounts withheld from the Final Release Amount on account of Pending Claims shall continue to be held by the Escrow Agent in the Escrow Account and shall be released promptly following the final resolution of each such Pending Claim in accordance with Section 4.1(d). For the avoidance of doubt, no new Claim Notices may be delivered by Parent after the Final Release Date, except with respect to claims for which a Claim Notice was timely delivered to the Escrow Agent and the Stockholder Representative on or prior to the Final Release Date.
(c) Release Mechanics. At least [Insert number] Business Days prior to each scheduled release date (i.e., the First Release Date and the Final Release Date), Parent shall deliver to the Escrow Agent and the Stockholder Representative a written notice (a "Release Certificate") setting forth in reasonable detail:
(i) the aggregate Claimed Amount of all Pending Claims as of the applicable release date;
(ii) the aggregate amount of all prior disbursements made to Parent from the Escrow Fund in satisfaction of resolved indemnification claims;
(iii) the proposed release amount for the applicable release date, calculated in accordance with Section 4.2(a) or Section 4.2(b), as applicable; and
(iv) a reasonably detailed summary of each Pending Claim, including the date of the applicable Claim Notice, the Claimed Amount, and the current status of such claim.
If the Stockholder Representative disputes any amount set forth in the Release Certificate, the Stockholder Representative shall notify the Escrow Agent and Parent in writing within [Insert number] Business Days following receipt of the Release Certificate, specifying in reasonable detail the basis for such dispute. In such event, the undisputed portion of the release amount shall be released to the Stockholder Representative on the scheduled release date, and the disputed portion shall remain in the Escrow Fund pending resolution of the dispute in accordance with the procedures set forth in Section 4.1(d) and Article VII. The Escrow Agent shall release funds on any scheduled release date only upon receipt of Joint Written Instructions (which may take the form of the Release Certificate if countersigned by the Stockholder Representative) or as otherwise expressly provided in this Agreement.
(d) Final Disbursement of Remaining Amounts. Following the final resolution of all Pending Claims outstanding after the Final Release Date (including all claims for which a Claim Notice was timely delivered prior to the Final Release Date), the Escrow Agent shall, promptly upon receipt of Joint Written Instructions, disburse the entire remaining balance of the Escrow Fund (if any) to the Stockholder Representative for distribution pro rata to the Former Stockholders in accordance with their respective Pro Rata Shares. Upon such final disbursement, the Escrow Account shall be closed, and the Escrow Agent shall have no further obligations with respect to the Escrow Fund, except as otherwise provided in Section 8.2.
Section 4.3 — Disbursement Mechanics
(a) All disbursements from the Escrow Fund shall be made by wire transfer of immediately available funds in United States dollars to the bank account(s) designated in writing by the applicable recipient (i.e., Parent or the Stockholder Representative, as the case may be). Each recipient shall provide the Escrow Agent with complete and accurate wire transfer instructions prior to any disbursement, and the Escrow Agent shall be entitled to rely on such instructions without independent verification.
(b) The Escrow Agent shall not be required to make any disbursement from the Escrow Fund except upon: (i) Joint Written Instructions delivered in accordance with this Agreement; (ii) a certified copy of a final, non-appealable order or judgment of a court of competent jurisdiction (or a final arbitration award, as applicable); or (iii) as expressly provided in this Agreement, including upon deemed acceptance under Section 4.1(c). The Escrow Agent shall be fully protected in acting in accordance with any such Joint Written Instructions, court order, or express provision of this Agreement.
(c) In the event of any conflict between Joint Written Instructions and any other notice or direction received by the Escrow Agent, the Joint Written Instructions shall control. The Escrow Agent shall have no obligation to disburse any portion of the Escrow Fund if the Escrow Agent has actual knowledge that a dispute exists between Parent and the Stockholder Representative with respect to the amount or recipient of such disbursement, except as required by a final, non-appealable court order or as otherwise expressly provided herein.
Section 4.4 — No Setoff
Neither Parent nor the Stockholder Representative shall have any right of setoff, recoupment, or counterclaim against the Escrow Fund or any portion thereof, except as expressly provided in this Agreement and the Merger Agreement. The Escrow Agent shall not honor any instruction to disburse funds from the Escrow Account that purports to exercise any right of setoff, recoupment, or counterclaim unless such instruction is in the form of Joint Written Instructions or is authorized by a final, non-appealable court order.
Section 4.5 — R&W Insurance Policy Interplay
(a) The Parties acknowledge and agree that the Escrow Fund shall constitute the first source of recovery for indemnification claims by Parent and the other Indemnified Persons under the Merger Agreement, and that the Escrow Fund retention under the R&W Insurance Policy is equal to the Escrow Amount. The R&W Insurance Policy provides coverage for Losses in excess of the retention amount (i.e., the Escrow Amount), up to the policy limit set forth in the R&W Insurance Policy, subject to the terms, conditions, exclusions, and limitations of such policy.
(b) Nothing in this Agreement shall affect, limit, modify, or otherwise impair the rights of Parent under the R&W Insurance Policy, which is a separate and independent contract between Parent and the R&W insurer. The Stockholder Representative and the Escrow Agent shall have no rights, obligations, or liabilities under the R&W Insurance Policy, and the existence or terms of the R&W Insurance Policy shall not affect the obligations of the Stockholder Representative or the Former Stockholders under the Merger Agreement or this Agreement.
(c) Parent shall use commercially reasonable efforts to pursue recovery under the R&W Insurance Policy for any Losses that exceed the Escrow Fund, and any recovery received by Parent under the R&W Insurance Policy with respect to a claim that has also been asserted against the Escrow Fund shall reduce (on a dollar-for-dollar basis) the aggregate amount of Losses for which the Former Stockholders may be held liable under the Merger Agreement, to the extent of such recovery. The foregoing sentence shall not create any rights in favor of the Stockholder Representative or the Former Stockholders as third-party beneficiaries of the R&W Insurance Policy.
ARTICLE V — ESCROW AGENT
Section 5.1 — 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, covenants, or obligations shall be read into this Agreement against the Escrow Agent. The Escrow Agent acts solely as a stakeholder and depositary with respect to the Escrow Fund and shall have no fiduciary duty or other duty of loyalty to any Party.
(b) The Escrow Agent shall have no duty to enforce any obligation of any person to make any deposit into the Escrow Account or to enforce any obligation of any Party under the Merger Agreement or any other agreement.
(c) The Escrow Agent shall have no duty to determine or inquire into the happening or occurrence of any event or contingency or the performance or failure of performance of any Party with respect to any agreement or arrangement (including the Merger Agreement), or to determine whether a claim asserted against the Escrow Fund is valid, meritorious, or within the scope of indemnification under the Merger Agreement.
(d) The Escrow Agent shall not be liable for any action taken, suffered, or omitted by it in good faith and believed by it to be authorized or within the rights or powers conferred upon it by this Agreement. The Escrow Agent shall not be liable for acting in accordance with any instruction, notice, demand, certificate, or document from any attorney, accountant, or other professional advisor that the Escrow Agent in good faith believes to be competent.
(e) The Escrow Agent shall not be liable for any action taken or omitted in good faith in reliance upon the advice of counsel (including counsel to the Escrow Agent) with respect to any matter relating to this Agreement and shall be fully protected in any such action or inaction.
Section 5.2 — Reliance
(a) The Escrow Agent may rely upon, and shall be protected in acting or refraining from acting upon, any notice, instruction, request, certificate, document, opinion, or other instrument or communication that it in good faith believes to be genuine and to have been signed, sent, or presented by the proper Party or Parties or by an authorized representative thereof as set forth on Schedule C hereto.
(b) The Escrow Agent may assume, absent actual knowledge to the contrary, that any person purporting to give any notice, instruction, or direction on behalf of a Party in connection with the provisions of this Agreement has been duly authorized to do so.
(c) The Escrow Agent shall not be responsible for the validity, sufficiency, accuracy, enforceability, or genuineness of any agreement or document (including the Merger Agreement, the Stockholder Representative Agreement, and the R&W Insurance Policy) other than this Agreement, and shall have no obligation to review, interpret, or enforce the terms of any such agreement or document.
Section 5.3 — Indemnification of Escrow Agent
(a) Parent and the Stockholder Representative (the latter acting on behalf of the Former Stockholders) 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, actions, suits, proceedings, demands, damages, costs, and expenses (including reasonable attorneys' fees, disbursements, and court costs) (collectively, "Escrow Agent Losses") arising out of or in connection with the Escrow Agent's acceptance of appointment as, or performance of its duties and obligations as, Escrow Agent 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 been directly caused by the Escrow Agent's gross negligence, willful misconduct, or fraud.
(b) As between Parent and the Stockholder Representative (on behalf of the Former Stockholders), the indemnification obligation set forth in this Section 5.3 shall be allocated [Insert allocation — e.g., "fifty percent (50%) to Parent and fifty percent (50%) to the Stockholder Representative (on behalf of the Former Stockholders)"], unless the Parties agree otherwise in Joint Written Instructions. Such allocation shall not affect the joint and several nature of the obligation as between Parent and the Stockholder Representative vis-à-vis the Escrow Agent.
(c) The indemnification obligations of the Parties under this Section 5.3 shall survive the resignation or removal of the Escrow Agent and the termination of this Agreement.
Section 5.4 — Compensation and Expenses
(a) The Escrow Agent shall be entitled to reasonable compensation for its services as Escrow Agent under this Agreement as set forth on Schedule B attached hereto and incorporated herein by reference.
(b) All fees and expenses of the Escrow Agent (including the fees and disbursements of its counsel) incurred in connection with the performance of its duties under this Agreement shall be paid by [Insert responsible party — e.g., "Parent"]; provided, however, that if Parent fails to pay any such fees or expenses when due, the Stockholder Representative (on behalf of the Former Stockholders) shall be jointly and severally liable for such amounts, unless otherwise agreed by the Parties in Joint Written Instructions.
(c) The Escrow Agent shall have, and is hereby granted, a prior lien on the Escrow Fund for any compensation and reimbursement of expenses due to the Escrow Agent hereunder; provided, however, that such lien shall be subordinate to the claims of Parent and the Stockholder Representative with respect to disbursements required under Sections 4.1 and 4.2 of this Agreement, and the Escrow Agent shall not exercise such lien so as to prevent or delay any disbursement required under this Agreement unless such disbursement would reduce the Escrow Fund below the amount of fees and expenses then due and payable to the Escrow Agent.
Section 5.5 — Resignation and Removal
(a) The Escrow Agent may resign from its duties and obligations under this Agreement at any time by giving not less than [Insert number] days' prior written notice of such resignation to Parent and the Stockholder Representative.
(b) The Escrow Agent may be removed at any time, with or without cause, by Joint Written Instructions delivered to the Escrow Agent, effective upon not less than [Insert number] days' prior written notice.
(c) Upon any resignation or removal, and upon the appointment of a successor escrow agent by Joint Written Instructions, the resigning or removed Escrow Agent shall deliver the Escrow Fund, together with all records and documents relating thereto, to the successor escrow agent designated in such Joint Written Instructions. If no successor escrow agent is designated in Joint Written Instructions within [Insert number] days following the effective date of such resignation or removal, the Escrow Agent may, at its sole discretion, (i) apply to any court of competent jurisdiction for the appointment of a successor escrow agent, (ii) deposit the Escrow Fund with any court of competent jurisdiction, or (iii) continue to hold the Escrow Fund until a successor is appointed, in each case at the cost and expense of the other Parties.
(d) Upon delivery of the Escrow Fund to a successor escrow agent or a court of competent jurisdiction in accordance with this Section 5.5, the resigning or removed Escrow Agent shall be discharged from all further obligations and liabilities under this Agreement, except for those obligations that expressly survive such resignation or removal (including the indemnification obligations of the other Parties under Section 5.3).
Section 5.6 — Successor Escrow Agent
Any successor escrow agent appointed in accordance with Section 5.5 shall execute and deliver to each of Parent and the Stockholder Representative a written instrument accepting such appointment and agreeing to be bound by the terms and conditions of this Agreement (or a counterpart or joinder hereto in form reasonably satisfactory to Parent and the Stockholder Representative), and shall thereupon become the Escrow Agent for all purposes under this Agreement as if originally named herein.
Section 5.7 — Interpleader
In the event of any disagreement or dispute between or among the Parties (or any other person) regarding the disbursement, ownership, or disposition of the Escrow Fund or any portion thereof, or in the event that the Escrow Agent receives conflicting instructions from the Parties, the Escrow Agent shall be entitled, at its sole option, to (a) refuse to comply with any demands or instructions with respect to the Escrow Fund and continue to hold the Escrow Fund until the dispute is resolved by Joint Written Instructions or by a final, non-appealable order of a court of competent jurisdiction, or (b) deposit the Escrow Fund (or any disputed portion thereof) with a court of competent jurisdiction in an action of interpleader or similar proceeding and interplead the Parties. Upon any such deposit, the Escrow Agent shall be relieved and discharged from all further obligations, duties, and liabilities under this Agreement with respect to the funds so deposited. The costs, expenses, and reasonable attorneys' fees incurred by the Escrow Agent in connection with any such interpleader action shall be paid by the non-prevailing Party in such action or, if no Party is determined to be the non-prevailing Party, shall be borne equally by Parent and the Stockholder Representative (on behalf of the Former Stockholders).
Section 5.8 — Force Majeure
The Escrow Agent shall not be liable for any delay or failure to perform any of its obligations under this Agreement if such delay or failure is caused by or results from events or circumstances beyond the Escrow Agent's reasonable control, including, without limitation, acts of God, fire, flood, earthquake, hurricane, or other natural disaster, epidemic or pandemic, war, invasion, hostilities, terrorist attack, civil unrest, labor dispute or strike, embargo, governmental action or regulation, failure of communication or computer systems, power outage, or interruption of transportation. In the event of any such delay or failure, the Escrow Agent's obligations shall be suspended for the duration of such event and the time for performance shall be extended by a period equal to the duration of such event.
ARTICLE VI — TAX MATTERS
Section 6.1 — Tax Reporting
(a) The Escrow Agent shall report all interest, dividends, and other income earned on the Escrow Fund to the Internal Revenue Service (the "IRS") and to the applicable state and local taxing authorities under the tax identification number of the Escrow Account as provided in Section 2.2(c). The Escrow Agent shall timely prepare and file (or cause to be prepared and filed) all required IRS Forms 1099 (or applicable successor forms) and any other tax information returns or reports required by applicable Law with respect to the Escrow Fund.
(b) The Parties agree that, for United States federal income tax purposes, the Escrow Amount shall be treated as owned by the Former Stockholders as deferred purchase price consideration, with the Escrow Agent acting as agent for the Former Stockholders with respect to the Escrow Fund. The Parties shall not take any position on any tax return or in any tax proceeding that is inconsistent with such treatment, unless required by a determination (within the meaning of Section 1313 of the Internal Revenue Code of 1986, as amended) of a taxing authority.
(c) The Escrow Agent shall deliver to the Stockholder Representative and Parent, on or before the applicable due date, copies of all tax information reports prepared by the Escrow Agent with respect to the Escrow Fund for each calendar year (or partial calendar year) during the Escrow Period.
Section 6.2 — Withholding
(a) The Escrow Agent shall be entitled to deduct and withhold from any amount otherwise distributable or disbursable from the Escrow Fund such amounts as may be required to be deducted and withheld under any provision of federal, state, local, or foreign tax law or regulation. To the extent that amounts are so deducted and withheld and paid over to the appropriate taxing authority, such amounts shall be treated for all purposes of this Agreement as having been disbursed to the Party with respect to which such deduction and withholding was made.
(b) Each of Parent and the Stockholder Representative shall, and the Stockholder Representative shall cause each Former Stockholder to, provide the Escrow Agent with a properly completed and executed IRS Form W-9 (Request for Taxpayer Identification Number and Certification) or the applicable IRS Form W-8 (Certificate of Foreign Status), as applicable, prior to any disbursement from the Escrow Fund to such person. The Escrow Agent shall be entitled to refuse to make any disbursement to any person that has not provided the required tax certification forms.
(c) In the event that the Escrow Agent is required to withhold any amounts pursuant to this Section 6.2, the Escrow Agent shall promptly notify the affected Party and provide reasonable detail regarding the amounts withheld and the basis for such withholding.
Section 6.3 — Tax Indemnity
Each Party receiving a disbursement from the Escrow Fund shall be solely responsible for the payment of any federal, state, local, or foreign taxes imposed on such Party with respect to such disbursement or with respect to any income earned on the Escrow Fund that is allocated to such Party for tax purposes. Neither the Escrow Agent nor any other Party shall have any liability for the tax obligations of any Party receiving a disbursement from the Escrow Fund.
ARTICLE VII — DISPUTE RESOLUTION
Section 7.1 — Disputes Among Parent and Stockholder Representative
(a) Any dispute, controversy, or claim arising between Parent and the Stockholder Representative regarding the validity, amount, or resolution of claims against the Escrow Fund, the calculation of release amounts, or any other matter arising under or in connection with this Agreement (other than disputes involving the Escrow Agent in its capacity as such) shall be resolved in accordance with [Insert dispute resolution mechanism from the Merger Agreement — e.g., "the dispute resolution provisions set forth in Section [Insert Section reference] of the Merger Agreement, which provides for (i) good faith negotiation between the parties for a period of [Insert number] days, followed by (ii) binding arbitration administered by [Insert arbitration body, e.g., JAMS or the American Arbitration Association] in [Insert city, state] in accordance with its then-current [Insert rules, e.g., Comprehensive Arbitration Rules and Procedures], or (iii) litigation in the courts specified in Section 9.5 of this Agreement"].
(b) Pending the resolution of any such dispute, the disputed portion of the Escrow Fund shall remain in the Escrow Account and shall continue to be invested and administered by the Escrow Agent in accordance with the terms of this Agreement. Neither Parent nor the Stockholder Representative shall be entitled to any disbursement of the disputed amount from the Escrow Fund until such dispute has been finally resolved.
Section 7.2 — Escrow Agent's Role in Disputes
The Escrow Agent shall have no obligation to resolve, mediate, or otherwise participate in the resolution of any dispute between Parent and the Stockholder Representative, and the Escrow Agent shall continue to hold the disputed portion of the Escrow Fund (without liability for any diminution in value thereof) until the earlier to occur of (a) receipt by the Escrow Agent of Joint Written Instructions directing the disbursement of such disputed amounts, (b) receipt by the Escrow Agent of a certified copy of a final, non-appealable order or judgment of a court of competent jurisdiction (or a final arbitration award) directing the disbursement of such disputed amounts, or (c) the deposit of such disputed amounts with a court of competent jurisdiction in an interpleader action pursuant to Section 5.7. The Escrow Agent shall be entitled to reimbursement by Parent and the Stockholder Representative for any costs or expenses incurred by the Escrow Agent in connection with any dispute between the Parties, including reasonable attorneys' fees.
ARTICLE VIII — TERMINATION
Section 8.1 — Termination
This Agreement shall automatically terminate, without further action by any Party, upon the distribution of the entire Escrow Fund in accordance with the terms of this Agreement and the closure of the Escrow Account. Upon such termination, neither the Escrow Agent nor any other Party shall have any further rights, duties, obligations, or liabilities under this Agreement, except for those obligations that by their express terms survive termination as set forth in Section 8.2.
Section 8.2 — Survival of Certain Provisions
Notwithstanding the termination of this Agreement pursuant to Section 8.1, the following provisions shall survive the termination of this Agreement and shall remain in full force and effect thereafter: Section 5.3 (Indemnification of Escrow Agent), Section 5.4 (Compensation and Expenses), Article VI (Tax Matters), Section 7.2 (Escrow Agent's Role in Disputes) (solely with respect to any matters arising prior to termination), and Article IX (Miscellaneous). The survival of such provisions shall not limit the termination of any other provision of this Agreement.
ARTICLE IX — MISCELLANEOUS
Section 9.1 — Notices
All notices, requests, demands, claims, consents, and other communications required or permitted to be given under this Agreement (collectively, "Notices") shall be in writing and shall be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by a nationally recognized overnight courier service (with written confirmation of receipt), (c) sent by registered or certified mail, return receipt requested, postage prepaid, or (d) sent by electronic mail (with confirmation of transmission and no automated "bounce-back" or rejection notification received), in each case addressed to the applicable Party at the address set forth below (or at such other address as such Party may designate in writing from time to time in accordance with this Section 9.1):
If to Parent:
[Insert full legal name of Parent] [Insert street address] [Insert city, state, zip code]
Attention: [Insert name and title]
Email: [Insert email address]
With a copy to (which shall not constitute notice): [Insert name of buyer's outside counsel] [Insert street address] [Insert city, state, zip code]
Attention: [Insert name]