ESCROW AND INDEMNITY HOLDBACK SAMPLE TERMS

Indemnity Escrow Structure

• Amount: [$] or [X]% of Purchase Price, funded at Closing.
• Term: [12–24] months from Closing; survival tied to general reps.
• Claims Process: Buyer may make claims by written notice before expiry; disputed amounts remain in escrow until resolved.
• Disbursement: Undisputed balance released to Seller upon expiry; amounts subject to open claims released per final resolution.
• Control: Escrow Agent acts ministerially; follows joint instructions or final order; interpleader permitted if conflicting demands.

Special Escrows / Holdbacks

• Working Capital Adjustment Escrow: [$] or [X]% to backstop post-closing true-up; short term (e.g., 90–180 days).
• Specific Indemnity Escrow: For known risks (e.g., tax, litigation, data/privacy); amount and duration tailored to risk.
• Seller Note Holdback: Portion of seller note may be offset for indemnity (if negotiated); define notice and setoff mechanics.

Baskets, Caps, and Materiality Scrape (Tie-In)

• Basket: [X]% of Purchase Price or $[AMOUNT]; ☐ deductible ☐ tipping.
• Cap: General reps capped at [Y]% of Purchase Price; fundamentals (authority, title, taxes) capped at Purchase Price.
• Materiality Scrape: Evaluate whether to ignore materiality qualifiers for calculating Losses.

Setoff Mechanics (If Allowed)

Buyer may set off finally determined indemnity amounts against: (a) escrow; (b) unpaid Purchase Price installments; (c) earn-out (if agreed). Setoff against earn-out should be limited and conditioned on notice and resolution timelines.

RWI Interplay (If Applicable)

• Caps adjusted to reflect RWI retention and exclusions.
• Escrow/holdback may be reduced if RWI policy covers general reps (confirm survival and retention timing).
• Claims process should avoid prejudicing insurer rights; include cooperation and notice aligned with policy.

Notice/Timing for Claims

• Claim Notice must specify factual basis, asserted losses, and relevant contract sections.
• Timing: Notice before escrow expiry preserves disputed amounts; undisputed portion released on schedule.

Escrow Agent Protections

Indemnify escrow agent for actions taken in good faith per instructions; liability limited to gross negligence or willful misconduct; fees shared [50/50] unless agreed otherwise.

Governing Law and Forum (Tie-In)

• These terms should follow the governing law and forum provisions in the SPA/APA and any escrow agreement; for California transactions, confirm California law and state/federal courts in [County], California.

[// GUIDANCE: Keep escrow agreement consistent with the SPA/APA dispute and notice provisions; match definitions of Losses, Claim Notice, and survival periods. Consider RWI interplay (caps and retention).]