Escrow Agreement

Summary

This is an escrow agreement among a purchaser, seller, and escrow agent relating to an asset purchase transaction. With some revision, this template can also work in either a stock purchase or merger. This template includes practical guidance, drafting notes, alternate clauses, and optional clauses. The parties to an M&A transaction may set aside a portion of the consideration in escrow for some period after closing. An escrow arrangement in an M&A transaction ensures that funds are available to support indemnification obligations and other common post-closing payments to either party, such as purchase price adjustments and earn-outs. For more information, see Indemnification Provisions in Private Acquisition Agreements and Purchase Price Adjustment Provisions in M&A Transaction Documents. Escrow arrangements are most commonly used in transactions involving the acquisition of private companies. In public company acquisitions, escrow amounts held back for indemnification purposes are uncommon because representations and warranties typically do not survive the closing in public deals. In addition, rights to receive escrow amounts may be construed as securities under applicable securities laws and regulations. In public deals, other purchase price and holdback arrangements, such as contingent value rights or floating exchange ratios may be used as substitutes. For more information, see Contingent Value Rights. This template escrow agreement contemplates one escrow account. Post-closing purchase price adjustments and indemnification claims will both be paid out of this single escrow account. If two or more accounts need to be used, the alternate clauses contained in this escrow agreement provide for a separate escrow account for each of the post-closing purchase price adjustment and the indemnification claims. This template provides for the escrowed funds to be deposited in cash. Escrow agreements providing for the deposit in escrow of securities customarily require additional provisions, particularly as to the valuation and voting of such securities. In merger and stock purchase transactions involving a number of selling stockholders, the selling stockholders often appoint a stockholder representative to administer post-closing actions on behalf of the selling stockholders and to represent the interests of the selling stockholders with regard to the escrow agreement and the distribution of funds from escrow. For more information, see Seller Representative Clause and Seller Representative and Contribution Agreement. For a comprehensive list of and links to resources in the Corporate and M&A practice area, see Asset Acquisition Resource Kit, Stock Acquisition Resource Kit, Ancillary Agreements in M&A Transactions Resource Kit, and Private Merger Transaction Resource Kit.