Escrow and Indemnity Holdback Terms - New York

ESCROW AND INDEMNITY HOLDBACK TERMS

Jurisdiction: State of New York

Prepared for Transaction Between:

PART I: OVERVIEW AND PURPOSE

1.1 Purpose of Escrow and Holdback

These Escrow and Indemnity Holdback Terms ("Holdback Terms") establish the terms and conditions under which a portion of the Purchase Price paid in connection with the transaction contemplated by the [Stock/Asset] Purchase Agreement dated [__/__/____] (the "Purchase Agreement") shall be held in escrow or retained as a holdback to secure the indemnification obligations of the Seller to the Buyer as set forth in Article [____] of the Purchase Agreement.

1.2 Definitions

Unless otherwise defined herein, capitalized terms used in these Holdback Terms shall have the meanings ascribed to them in the Purchase Agreement. For purposes of these Holdback Terms:

1.3 Typical Escrow Structures in New York M&A Transactions

The following escrow structures are commonly used in New York-based transactions:

• General Indemnity Escrow: [5-15]% of Purchase Price held for [12-24] months to cover breaches of general representations and warranties
• Working Capital Adjustment Escrow: Separate escrow of $[________] or [____]% to backstop post-closing true-up; typically [90-180] day term
• Specific Indemnity Escrow: Tailored escrow for identified risks (tax, litigation, IP, regulatory); amount and duration matched to specific risk
• Holdback (Non-Escrow): Portion of Purchase Price retained by Buyer (not deposited with third-party escrow agent) as additional indemnification security
• Seller Note with Setoff: Seller financing with contractual right of offset for finally determined indemnification claims

[DRAFTING NOTE: New York is the most commonly chosen governing law for M&A transactions in the United States. New York law is generally favorable to the enforcement of contractual indemnification provisions, including holdbacks, escrows, baskets, caps, and survival limitations. New York does not have a standalone escrow licensing statute for commercial M&A transactions.]

PART II: ESCROW AGREEMENT TERMS

2.1 Escrow Amount

(a) General Indemnity Escrow. At Closing, Buyer shall deposit (or cause to be deposited) the Aggregate Escrow Amount of $[________________________________] into the Escrow Account by wire transfer of immediately available funds.

(b) Working Capital Adjustment Escrow (if applicable).

☐ A separate working capital escrow in the amount of $[________________________________] shall be deposited into a separate Escrow Account (the "WC Escrow Account") at Closing.

☐ Not applicable to this transaction.

(c) Specific Indemnity Escrow (if applicable).

☐ A specific indemnity escrow in the amount of $[________________________________] shall be deposited into a separate Escrow Account (the "Specific Escrow Account") at Closing to address the following identified risk(s): [________________________________].

☐ Not applicable to this transaction.

2.2 Escrow Agent

(a) Appointment. The parties hereby appoint [________________________________] as Escrow Agent to hold, invest, and disburse the Escrow Amount in accordance with these Holdback Terms and the Escrow Agreement.

(b) Qualification. The Escrow Agent shall be one of the following:

☐ National Banking Association: A national banking association with trust powers (e.g., JPMorgan Chase, Citibank, Bank of America).

☐ New York-Chartered Trust Company or Bank: A bank or trust company chartered under the New York Banking Law and authorized to exercise fiduciary powers (regulated by the New York Department of Financial Services (NYDFS) under N.Y. Banking Law § 100 et seq.).

☐ New York-Admitted Attorney: An attorney admitted to practice in New York holding funds in an attorney escrow account in compliance with 22 NYCRR Part 1200, Rule 1.15 and N.Y. Judiciary Law § 497.

☐ Licensed Title Insurance Company: A New York-licensed title insurance company or agent (for transactions with significant real property components).

☐ Other FDIC-Insured Financial Institution: [________________________________], with assets exceeding $[________________________________].

(c) Escrow Agreement. The parties and the Escrow Agent shall enter into a separate Escrow Agreement substantially in the form attached as Exhibit [____] to the Purchase Agreement (the "Escrow Agreement"), which shall govern the duties and obligations of the Escrow Agent.

2.3 Escrow Period

(a) General Indemnity Escrow Period. The Escrow Period shall commence on the Closing Date and shall expire on the date that is [____] months after the Closing Date (the "Escrow Expiration Date"), unless extended with respect to Pending Claims as provided in Section 6.3.

(b) Working Capital Escrow Period. If a Working Capital Adjustment Escrow is established, the WC Escrow Period shall expire on the date that is [____] days after the Closing Date, or upon the final determination of the Closing Working Capital in accordance with Section [____] of the Purchase Agreement, whichever occurs later.

(c) Specific Indemnity Escrow Period. If a Specific Indemnity Escrow is established, the Specific Escrow Period shall expire on the date that is [____] months after the Closing Date or upon final resolution of the identified risk(s), whichever occurs later.

2.4 Release Conditions

The Escrow Amount (or any portion thereof) shall be released from the Escrow Account only upon:

(a) Joint Written Instruction from Buyer and Seller;

(b) A final, non-appealable order of a court of competent jurisdiction directing disbursement;

(c) An arbitration award rendered in accordance with Section [____] hereof, if applicable;

(d) The scheduled release dates set forth in Part VI hereof, subject to retention for Pending Claims; or

(e) As otherwise provided in these Holdback Terms or the Escrow Agreement.

PART III: INDEMNITY HOLDBACK TERMS

3.1 Holdback Amount

(a) At Closing, Buyer shall retain from the Purchase Price otherwise payable to Seller the Holdback Amount of $[________________________________] (representing [____]% of the Purchase Price).

(b) The Holdback Amount shall be held by Buyer in [a segregated account / Buyer's general funds] and shall serve as security for Seller's indemnification obligations under Article [____] of the Purchase Agreement.

3.2 Holdback Period

(a) General Holdback Period. The Holdback Period shall commence on the Closing Date and shall expire on the date that is [____] months after the Closing Date (the "Holdback Expiration Date").

(b) Extended Holdback Period for Fundamental Representations. With respect to claims arising from breaches of Fundamental Representations, the Holdback Period shall extend until the date that is [____] months after the Closing Date, or the expiration of the applicable statute of limitations plus [____] days, whichever is longer.

(c) Extended Holdback Period for Tax Matters. With respect to tax indemnification claims, the Holdback Period shall extend until [____] days after the expiration of the applicable statute of limitations for the assessment of the relevant tax (including any extensions thereof).

(d) New York Statute of Limitations Considerations. The general statute of limitations for breach of contract in New York is six (6) years (N.Y. CPLR § 213(2)). For fraud, the limitation period is the later of six (6) years from the fraud or two (2) years from discovery (N.Y. CPLR § 213(8) and § 203(g)). For breach of warranty, the UCC provides a four (4) year period (N.Y. UCC § 2-725). The Survival Period and Holdback Period should be calibrated accordingly.

[DRAFTING NOTE: New York's six-year contract limitations period is among the longest in the nation. Counsel should carefully consider whether to contractually shorten the survival period for representations and warranties, as New York generally permits parties to agree to shorter limitations periods in commercial transactions. See John J. Kassner & Co. v. City of New York, 46 N.Y.2d 544 (1979).]

3.3 Holdback Claim Procedures

(a) Notice. Buyer shall deliver a Claim Notice to Seller specifying in reasonable detail:

• (i) The nature and basis of the claim;
• (ii) The specific representations, warranties, or covenants alleged to have been breached;
• (iii) The estimated amount of Losses (if then determinable); and
• (iv) The factual basis for the claim.

(b) Response Period. Seller shall have [____] Business Days after receipt of a Claim Notice to deliver a written response to Buyer indicating whether Seller disputes the claim in whole or in part.

(c) Undisputed Claims. If Seller does not timely dispute a claim (or the undisputed portion thereof), Buyer may apply the applicable portion of the Holdback Amount to satisfy such claim.

(d) Disputed Claims. If Seller timely disputes a claim, the disputed amount shall remain subject to the Holdback until the claim is Finally Resolved.

3.4 Baskets, Caps, and Limitations

(a) Basket (Deductible/Tipping).

☐ Deductible Basket: The Indemnifying Party shall not be liable for Losses until the aggregate amount of all Losses exceeds $[________________________________] (the "Basket Amount"), and then only for the amount in excess of the Basket Amount.

☐ Tipping Basket (First-Dollar): The Indemnifying Party shall not be liable for Losses until the aggregate amount of all Losses exceeds the Basket Amount, at which point the Indemnifying Party shall be liable for all Losses from the first dollar.

☐ Mini-Basket: Individual claims below $[________________________________] shall not count toward the Basket Amount.

(b) Cap on Liability.

• General Representations: Losses capped at $[________________________________] or [____]% of Purchase Price.
• Fundamental Representations: Losses capped at $[________________________________] or [____]% of Purchase Price (typically 100%).
• Special Indemnities: Losses capped at $[________________________________] or as separately negotiated.

(c) Materiality Scrape.

☐ Materiality qualifiers in representations and warranties shall be disregarded for purposes of determining whether a breach has occurred ("qualification scrape").

☐ Materiality qualifiers shall be disregarded for purposes of calculating the amount of Losses ("indemnity scrape").

☐ Materiality qualifiers shall apply for all purposes (no scrape).

3.5 Setoff Mechanics

(a) Setoff Against Escrow. Buyer's primary recourse for indemnification claims shall be against the Escrow Amount.

(b) Setoff Against Holdback. After exhaustion of the Escrow Amount (or if no Escrow is established), Buyer may setoff Finally Resolved indemnification claims against the Holdback Amount.

(c) Setoff Against Other Amounts (if applicable).

☐ Buyer may setoff Finally Resolved claims against unpaid Purchase Price installments.
☐ Buyer may setoff Finally Resolved claims against earnout payments, subject to [________________________________].
☐ Setoff against earnout limited to [____]% of any individual earnout payment.
☐ No setoff against amounts other than Escrow and Holdback.

3.6 Representations and Warranty Insurance (RWI) Interplay

(if applicable)

☐ RWI Policy in Place. A representations and warranty insurance policy has been obtained by [Buyer/Seller] (the "RWI Policy").

• The indemnity cap for general representations shall be reduced to $[________________________________] (the RWI retention amount).
• The Escrow Amount shall be sized at $[________________________________] to cover the RWI retention.
• Claim procedures shall comply with the RWI Policy's notice and cooperation requirements.
• Buyer shall not take any action that would prejudice the insurer's rights under the RWI Policy.
• The Survival Period for general representations shall match the RWI Policy period of [____] years.

☐ No RWI Policy. Not applicable.

PART IV: CLAIMS PROCESS

4.1 Notice of Claim

(a) Direct Claims. An Indemnified Party seeking indemnification for a Direct Claim (a claim that does not involve a Third-Party Claim) shall deliver a Claim Notice to the Indemnifying Party and the Escrow Agent, specifying:

• (i) The factual basis for the claim in reasonable detail;
• (ii) The sections of the Purchase Agreement alleged to have been breached;
• (iii) The estimated amount of Losses, to the extent then reasonably determinable; and
• (iv) Supporting documentation, to the extent reasonably available.

(b) Third-Party Claims. If an Indemnified Party receives notice of a claim or action by a third party that may give rise to an indemnification claim, the Indemnified Party shall:

• (i) Deliver a Claim Notice to the Indemnifying Party within [____] Business Days of receiving notice of such third-party claim;
• (ii) Provide copies of all material documents relating to the third-party claim; and
• (iii) Permit the Indemnifying Party to assume the defense of such third-party claim, subject to the conditions set forth in Section 4.4 below.

(c) Failure to Give Timely Notice. The failure of an Indemnified Party to deliver a timely Claim Notice shall not relieve the Indemnifying Party of its indemnification obligations except to the extent the Indemnifying Party is actually and materially prejudiced by such failure.

4.2 Response Period

(a) The Indemnifying Party shall have [____] Business Days (the "Response Period") after receipt of a Claim Notice to deliver a written response (the "Claim Response") to the Indemnified Party and the Escrow Agent.

(b) The Claim Response shall state whether the Indemnifying Party:

• (i) Accepts the claim in full;
• (ii) Accepts the claim in part and disputes the remainder (specifying the disputed amount and basis for dispute); or
• (iii) Disputes the claim in full (specifying the basis for dispute in reasonable detail).

(c) If the Indemnifying Party fails to deliver a timely Claim Response, the Indemnifying Party shall be deemed to have:

☐ Accepted the claim in full.
☐ Disputed the claim in full.
☐ [Other: ________________________________].

4.3 Dispute Resolution

If the Indemnifying Party disputes a claim in whole or in part, the parties shall attempt to resolve the dispute as follows:

(a) Negotiation. The parties shall negotiate in good faith for a period of [____] Business Days following delivery of the Claim Response.

(b) Mediation (if applicable).

☐ If negotiation is unsuccessful, the parties shall submit the dispute to non-binding mediation administered by [________________________________] in New York, New York.

☐ Not applicable.

(c) Arbitration (if applicable).

☐ If mediation is unsuccessful (or not elected), the dispute shall be submitted to binding arbitration administered by [the American Arbitration Association (AAA) / JAMS / other: ________________________________] in accordance with its [Commercial Arbitration Rules / other: ________________________________]. The arbitration shall be conducted in New York, New York, before [one / three] arbitrator(s).

☐ Not applicable.

(d) Litigation. If arbitration is not elected, the parties consent to the exclusive jurisdiction of the [Supreme Court of the State of New York, [________________________________] County / United States District Court for the [Southern / Eastern / Northern / Western] District of New York], and waive any objection to venue or personal jurisdiction therein.

[DRAFTING NOTE: The New York Supreme Court, New York County (Manhattan) and the U.S. District Court for the Southern District of New York are the most common forums for M&A disputes governed by New York law. The New York Commercial Division of the Supreme Court (established under 22 NYCRR § 202.70) provides specialized handling of complex commercial disputes and is available in several counties.]

4.4 Defense of Third-Party Claims

(a) Assumption of Defense. The Indemnifying Party may assume the defense of a third-party claim by delivering written notice to the Indemnified Party within [____] Business Days of receiving the Claim Notice.

(b) Conditions to Assumption. The Indemnifying Party may assume the defense only if:

• (i) The Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party with respect to such claim (subject to any applicable limitations);
• (ii) The third-party claim seeks only monetary damages and does not seek an injunction or other equitable relief against the Indemnified Party;
• (iii) There is no conflict of interest that would make separate representation advisable; and
• (iv) The Indemnifying Party selects counsel reasonably satisfactory to the Indemnified Party.

(c) Settlement. The Indemnifying Party may not settle a third-party claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld, conditioned, or delayed) unless the settlement:

• (i) Involves only the payment of money;
• (ii) Does not involve any admission of liability or wrongdoing by the Indemnified Party;
• (iii) Includes a complete release of the Indemnified Party; and
• (iv) Does not impose any restriction on the Indemnified Party's business.

4.5 Partial Releases During Escrow Period

(a) Scheduled Partial Releases. The parties may agree to the following partial release schedule:

☐ [____]% of the Escrow Amount released on the [____]-month anniversary of the Closing Date, less Pending Claims.
☐ [____]% of the Escrow Amount released on the [____]-month anniversary of the Closing Date, less Pending Claims.
☐ Remaining balance released on the Escrow Expiration Date, less Pending Claims.

(b) Early Release by Agreement. The parties may agree to an early release of all or a portion of the Escrow Amount by Joint Written Instruction at any time.

PART V: ESCROW AGENT PROVISIONS

5.1 Duties of Escrow Agent

(a) The Escrow Agent shall hold, safeguard, and disburse the Escrow Amount solely in accordance with the terms of the Escrow Agreement and these Holdback Terms.

(b) The Escrow Agent shall act in a ministerial capacity only and shall not be required to interpret or enforce the Purchase Agreement or make any determination as to whether a claim is valid.

(c) The Escrow Agent shall not be liable for any act or omission taken in good faith in reliance upon any Joint Written Instruction, court order, or arbitration award, except for acts or omissions constituting gross negligence, willful misconduct, or fraud.

5.2 Escrow Agent Fees

(a) The Escrow Agent's fees shall be as set forth in the Escrow Agreement and shall be paid:

☐ [50]% by Buyer and [50]% by Seller
☐ 100% by Buyer
☐ 100% by Seller
☐ Other: [________________________________]

(b) Fee Schedule (typical ranges):

5.3 Resignation and Removal

(a) Resignation. The Escrow Agent may resign upon [____] days' prior written notice to Buyer and Seller. The resignation shall not become effective until a successor Escrow Agent has been appointed.

(b) Removal. The Escrow Agent may be removed by Joint Written Instruction upon [____] days' prior written notice to the Escrow Agent.

(c) Successor Appointment. If a successor Escrow Agent is not appointed within [____] days of the effective date of resignation or removal, the Escrow Agent may petition a court of competent jurisdiction to appoint a successor or may interplead the Escrow Amount into court.

5.4 Investment of Escrow Funds

(a) The Escrow Agent shall invest the Escrow Amount as directed by Joint Written Instruction in one or more of the following:

☐ Money market deposit accounts at the Escrow Agent's institution
☐ United States Treasury obligations with maturities not exceeding [____] months
☐ Certificates of deposit issued by FDIC-insured institutions, not exceeding FDIC insurance limits
☐ Money market mutual funds investing exclusively in U.S. government obligations
☐ Other: [________________________________]

(b) In the absence of Joint Written Instruction, the Escrow Agent shall invest the Escrow Amount in [________________________________].

(c) Risk Allocation. All investment risk (including risk of loss of principal) shall be borne by [Buyer / Seller / shared equally / the party to whom the Escrow Amount is ultimately disbursed].

5.5 Tax Reporting

(a) For federal and state income tax purposes, the Escrow Amount (including all interest and income earned thereon) shall be treated as owned by [Seller / Buyer] and reported under Tax Identification Number [________________________________].

(b) The Escrow Agent shall issue IRS Form 1099 (or other applicable tax reporting forms) to [Seller / Buyer] with respect to all income earned on the Escrow Amount.

(c) [Seller / Buyer] shall be responsible for the payment of all taxes on income earned on the Escrow Amount, regardless of to whom the Escrow Amount is ultimately disbursed.

(d) New York State and City Tax. New York imposes state income tax on interest and investment income. The top marginal rate for individuals is 10.9% (N.Y. Tax Law § 601). For New York City residents, an additional city income tax applies (up to 3.876%). For corporations, the New York business corporation tax rate is 7.25% (under the Tax Law Article 9-A reforms, with variations based on business income base, capital base, and fixed dollar minimum). The parties should coordinate with their tax advisors regarding New York and NYC tax reporting for escrow income.

5.6 Indemnification of Escrow Agent

Buyer and Seller shall jointly and severally indemnify, defend, and hold harmless the Escrow Agent from and against any and all losses, liabilities, damages, claims, and expenses (including reasonable attorneys' fees) arising out of or in connection with the Escrow Agent's performance of its duties hereunder, except to the extent caused by the Escrow Agent's gross negligence, willful misconduct, or fraud.

5.7 Interpleader

If at any time the Escrow Agent receives conflicting instructions from Buyer and Seller, or if a dispute arises between the parties regarding the Escrow Amount, the Escrow Agent shall be entitled (but not obligated) to:

(a) Refuse to act until the dispute is resolved by agreement, arbitration, or court order;

(b) Interplead the Escrow Amount into the Supreme Court of the State of New York, New York County, or the United States District Court for the Southern District of New York; and

(c) Recover its costs and reasonable attorneys' fees incurred in connection with such interpleader action from the Escrow Amount.

PART VI: RELEASE MECHANICS

6.1 Scheduled Releases

(a) First Release (if applicable). On the date that is [____] months after the Closing Date (the "First Release Date"), the Escrow Agent shall release to Seller an amount equal to [____]% of the initial Escrow Amount, less the aggregate amount of all Pending Claims as of such date.

(b) Second Release (if applicable). On the date that is [____] months after the Closing Date (the "Second Release Date"), the Escrow Agent shall release to Seller an amount equal to [____]% of the initial Escrow Amount, less the aggregate amount of all Pending Claims as of such date.

(c) Final Release. On the Escrow Expiration Date, the Escrow Agent shall release to Seller the entire remaining balance of the Escrow Amount, less the aggregate amount of all Pending Claims as of such date.

6.2 Working Capital Adjustment Release

If a Working Capital Adjustment Escrow was established:

(a) Upon the final determination of the Closing Working Capital pursuant to Section [____] of the Purchase Agreement, the Escrow Agent shall disburse the WC Escrow Amount as follows:

• If the Closing Working Capital exceeds the Target Working Capital, the excess shall be paid to Seller, and the remainder shall be returned to Buyer; or
• If the Target Working Capital exceeds the Closing Working Capital, the deficiency shall be paid to Buyer, and the remainder shall be paid to Seller.

(b) If the entire WC Escrow Amount is insufficient to cover the working capital deficiency, Seller shall pay the shortfall to Buyer within [____] Business Days.

6.3 Holdback Release

(a) Scheduled Release. On the Holdback Expiration Date, Buyer shall pay to Seller the Holdback Amount (or the remaining balance thereof), less the aggregate amount of all Pending Claims as of such date.

(b) Pending Claims Reserve. Buyer may retain from the Holdback Amount an amount equal to [100 / 125 / 150]% of the aggregate claimed amount of all Pending Claims (the "Claims Reserve").

(c) Release of Claims Reserve. Upon final resolution of each Pending Claim, Buyer shall promptly pay to Seller the portion of the Claims Reserve attributable to such claim that is not required to satisfy the resolved claim.

6.4 Joint Instruction Requirements

(a) All releases from the Escrow Account (other than pursuant to a court order or arbitration award) shall require a Joint Written Instruction executed by authorized representatives of both Buyer and Seller.

(b) The Joint Written Instruction shall specify:

• (i) The amount to be released;
• (ii) The party to whom the release is to be made;
• (iii) Wire transfer instructions for the receiving party; and
• (iv) Any applicable withholding or tax reporting instructions.

(c) The Escrow Agent shall make the disbursement within [____] Business Days of receipt of a compliant Joint Written Instruction.

6.5 Final Accounting

Within [____] Business Days following the final disbursement of all amounts from the Escrow Account, the Escrow Agent shall deliver to Buyer and Seller a final accounting statement reflecting all deposits, investment income, disbursements, fees, and taxes relating to the Escrow Account.

PART VII: NEW YORK-SPECIFIC REQUIREMENTS

7.1 Escrow Regulation in New York

(a) No Standalone Commercial Escrow Licensing. New York does not have a standalone escrow agent licensing statute for commercial M&A escrow transactions comparable to those in California (Financial Code § 17000+) or Arizona (A.R.S. § 6-801+). Instead, the regulatory framework depends on the type of entity serving as escrow agent.

(b) Banking Organizations. Banks and trust companies chartered under the New York Banking Law (N.Y. Banking Law § 100 et seq.) are regulated by the New York Department of Financial Services (NYDFS). These institutions are authorized to hold funds in a fiduciary capacity and are the most common escrow agents for large M&A transactions.

(c) Attorney Escrow Accounts. New York attorneys serving as escrow agents must comply with:

• New York Rules of Professional Conduct Rule 1.15 (22 NYCRR Part 1200, Rule 1.15): Safekeeping of property
• N.Y. Judiciary Law § 497: Interest on Lawyer Account (IOLA) requirements
• Escrow funds must be held in a "special account" at a bank or trust company authorized to do business in New York (GBL § 778-a for residential transactions; NYRPC Rule 1.15 for all matters)
• The attorney's books of account and banking records must accurately show the allocation to each owner of all funds deposited in the attorney's escrow account
• Attorneys must not commingle escrow funds with personal or business accounts

(d) Home Purchase Escrow (GBL § 778-a). For residential real property transactions:

• An escrow agent holding a buyer's down payment must segregate and safeguard the deposit in a special bank account
• The escrow agent shall not commingle the down payment with personal or business funds
• The contract must identify the escrow agent and the bank in which the down payment will be deposited
• This provision applies specifically to home purchases but its principles inform best practices for commercial escrow

(e) New York Attorney General Escrow Regulations. The New York Attorney General's Office has regulatory authority over certain escrow arrangements, particularly in the real estate context. The AG's regulations govern cooperative and condominium offering plans, requiring escrow of deposits in specified financial institutions.

7.2 New York Abandoned Property Law (ABP)

(a) Overview. New York's Abandoned Property Law (ABP) governs the reporting and remittance of unclaimed property to the New York State Office of the State Comptroller (OSC), Office of Unclaimed Funds.

(b) Dormancy Periods. Under the ABP, property is deemed abandoned based on the following dormancy periods:

[DRAFTING NOTE: There have been pending legislative proposals to extend the dormancy period for bank deposits from three to five years. Verify current dormancy periods at the time of execution.]

(c) Applicability to Escrow Funds. Escrow funds that remain undisbursed after the expiration of the Escrow Period and resolution of all claims may be classified as abandoned property under the ABP. The OSC considers the dormancy clock to start running when the property becomes payable or distributable.

(d) Reporting Requirements:

• Holders must file reports with the OSC annually
• Reports are due by March 10 of each year for most holders (other specific dates apply to certain holder types)
• Reports must be submitted using the NAUPA (National Association of Unclaimed Property Administrators) standard format through the Kelmar Abandoned Property System (KAPS)
• Reports must include the owner's name, last known address, Social Security number or Tax ID (if available), and a description of the property

(e) Due Diligence. Under ABP § 301 and § 302:

• Before reporting property as abandoned, the holder must conduct due diligence to locate the rightful owner
• Due diligence includes sending written notification to the owner's last known address
• Notice must be sent between 90 and 150 days before the report filing deadline

(f) Practical Escrow Provision. To mitigate unclaimed property risk, include the following in the Escrow Agreement:

"If any portion of the Escrow Amount remains undisbursed for a period of [____] months following the Escrow Expiration Date (or, with respect to Pending Claims, the final resolution thereof), the Escrow Agent shall provide written notice to Buyer and Seller at their respective notice addresses. If the Escrow Agent does not receive a Joint Written Instruction within [____] days of such notice, the Escrow Agent may take such actions as it deems necessary to comply with applicable abandoned property laws, including the New York Abandoned Property Law."

7.3 Trust Account Rules

(a) Banking Organizations. New York-chartered banks and trust companies acting as escrow agents are regulated under N.Y. Banking Law by the NYDFS. They must:

• Maintain escrow funds separate from the institution's own assets
• Comply with NYDFS examination requirements
• Maintain appropriate fidelity bond coverage
• Follow fiduciary duty standards established under New York law

(b) Attorney Trust Accounts. Under NYRPC Rule 1.15 (22 NYCRR § 1200, Rule 1.15):

• Attorneys must maintain trust accounts at banks or trust companies authorized to do business in New York
• Funds held for a particular client or in specific amounts may be held in a separate interest-bearing account for the benefit of that client
• Other client funds must be deposited in an IOLA account (N.Y. Judiciary Law § 497)
• Attorneys must maintain contemporaneous records of all deposits and withdrawals
• Trust account records must be maintained for a period of at least seven (7) years after the events they record

(c) NYDFS Regulation. The New York Department of Financial Services (NYDFS) has broad regulatory authority over financial institutions operating in New York, including the power to examine, audit, and take enforcement action.

7.4 New York City Transfer Tax and Related Considerations

For M&A transactions involving New York real property:

(a) Real Property Transfer Tax (RPTT). NYC imposes a Real Property Transfer Tax on transfers of real property or economic interests in entities owning real property. The RPTT rate is 1% to 2.625% depending on the property value and type (residential vs. commercial).

(b) Mansion Tax. For residential properties exceeding $1 million, an additional tax applies (ranging from 1% to 3.9% depending on the purchase price).

(c) Escrow for Transfer Taxes. Consider whether a separate escrow should be established to address transfer tax obligations arising from M&A transactions that include New York real property.

7.5 Choice of Law and Forum Considerations

(a) Governing Law. These Holdback Terms and the Escrow Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict-of-laws principles.

[DRAFTING NOTE: N.Y. General Obligations Law § 5-1401 permits parties to commercial transactions involving not less than $250,000 to choose New York law as the governing law regardless of whether the transaction bears a reasonable relationship to New York. GOL § 5-1402 permits consent to New York jurisdiction for transactions involving not less than $1,000,000.]

(b) Forum Selection. Any dispute arising under or relating to these Holdback Terms or the Escrow Agreement shall be resolved exclusively in:

☐ The Supreme Court of the State of New York, New York County (Commercial Division)
☐ The Supreme Court of the State of New York, [________________________________] County
☐ The United States District Court for the Southern District of New York
☐ Either state or federal court in New York County, at the election of the filing party

(c) Waiver of Jury Trial (if applicable).

☐ The parties waive their right to a jury trial in any action arising under or relating to these Holdback Terms.

☐ Jury trial right preserved.

[DRAFTING NOTE: New York courts routinely enforce contractual jury trial waivers in commercial disputes. See Citibank, N.A. v. Itochu Int'l, Inc., 292 A.D.2d 198 (1st Dep't 2002). Such waivers should be conspicuous. The New York Constitution, Art. I, § 2, preserves the right to trial by jury, but waiver is permitted.]

(d) New York Arbitration. New York CPLR Article 75 governs arbitration agreements. The Federal Arbitration Act (FAA) preempts conflicting state law for transactions involving interstate commerce. Arbitration clauses in commercial M&A agreements are routinely enforced.

PART VIII: PRACTICE NOTES

8.1 Negotiation Tips for New York M&A Transactions

(a) Escrow Size. Market practice for general indemnity escrows in private M&A transactions is typically 5-15% of the purchase price. New York's deep deal market generally follows national trends as reported in the ABA Private Target Deal Points Study.

(b) Escrow Period. Standard escrow periods range from 12 to 24 months. New York's six-year contract limitations period (CPLR § 213(2)) may influence survival period negotiations, but market practice typically caps escrow at 12-24 months regardless.

(c) Escrow Agent Selection. For New York-based transactions, the major money-center banks (JPMorgan Chase, Citibank, Bank of America) are the most common escrow agents for large transactions. For smaller deals, New York attorneys or regional trust companies are commonly used.

(d) Commercial Division. For disputes likely to be litigated, consider selecting the New York County Commercial Division (Supreme Court, New York County) as the designated forum. The Commercial Division (22 NYCRR § 202.70) provides specialized handling of complex commercial cases with monetary thresholds and expedited procedures.

(e) GOL §§ 5-1401 and 5-1402. For transactions not otherwise connected to New York, ensure the Purchase Price exceeds $250,000 (for choice of law under GOL § 5-1401) or $1,000,000 (for consent to jurisdiction under GOL § 5-1402) to ensure enforceability of the New York choice of law and forum provisions.

(f) RWI Market. New York is the center of the R&W insurance market. For transactions with RWI, the escrow is typically sized at the RWI retention amount (often 1-3% of enterprise value), with the policy covering excess losses.

8.2 Market Terms Reference

8.3 Common Pitfalls

(a) Failure to Meet GOL Thresholds. If the transaction amount is below $250,000, a New York choice-of-law clause may not be enforceable under GOL § 5-1401 for transactions without a New York nexus. Verify the threshold.

(b) Misalignment Between Documents. Ensure that the Escrow Agreement, Purchase Agreement, and these Holdback Terms use consistent defined terms, survival periods, and claim procedures.

(c) Failure to Address State and City Taxes. New York's combined state and city income tax burden can exceed 14.7% for NYC residents. Coordinate tax reporting for escrow income.

(d) Forgetting Unclaimed Property. New York's OSC actively enforces abandoned property reporting. Build automatic release mechanisms into the Escrow Agreement to avoid escheatment.

(e) Inadequate Claims Reserve. When sizing the Claims Reserve, consider using 125-150% of the claimed amount.

(f) Ignoring Escrow Agent Limitations. Escrow agents act ministerially. The Escrow Agreement must provide clear instructions for every foreseeable disbursement scenario.

(g) Failure to Coordinate with RWI Policy. In the New York market where RWI is common, failure to align escrow and indemnity provisions with the RWI policy can create coverage gaps.

(h) Not Using Commercial Division. For complex M&A disputes, failing to designate the Commercial Division may result in less efficient proceedings.

8.4 Checklist for Counsel

☐ Confirm escrow amount, holdback amount, and percentage of Purchase Price
☐ Verify Escrow Agent is qualified (bank, trust company, or attorney with proper trust account)
☐ Verify escrow period aligns with survival periods in Purchase Agreement
☐ Confirm basket type (deductible vs. tipping) and amount
☐ Confirm cap on liability for general and fundamental representations
☐ Address materiality scrape (qualification and/or indemnity)
☐ Review setoff provisions and priority of recovery
☐ Review investment instructions for escrow funds
☐ Address tax reporting (federal, New York State, and NYC if applicable)
☐ Include abandoned property / escheat provisions (ABP § 300 et seq.)
☐ Confirm dispute resolution mechanism (negotiation, mediation, arbitration, litigation)
☐ Verify forum selection (Commercial Division recommended for complex disputes)
☐ Confirm GOL § 5-1401 / § 5-1402 thresholds are met
☐ Address jury trial waiver (if desired)
☐ Coordinate with RWI policy (if applicable)
☐ Confirm Escrow Agreement form is consistent with Purchase Agreement
☐ Address real property transfer tax provisions (if applicable)
☐ Address working capital adjustment mechanics (if applicable)
☐ Confirm notice provisions are consistent across all transaction documents
☐ Consider NYDFS regulatory implications for banking escrow agents

SOURCES AND REFERENCES

1. New York Abandoned Property Law (ABP)
   - § 300: Unclaimed property held by banking organizations (3-year dormancy)
   - § 301-302: Due diligence requirements
   - § 500: Unclaimed dividends and distributions
   - § 700: Insurance proceeds
   - § 1315: Miscellaneous unclaimed property
   - https://law.justia.com/codes/new-york/abp/

2. New York State Comptroller - Office of Unclaimed Funds
   - Reporting requirements: https://www.osc.ny.gov/unclaimed-funds/reporters

3. New York General Business Law
   - § 622: Escrow required (home improvement)
   - § 778-a: Escrow accounts for home purchases
   - https://ag.ny.gov/resources/organizations/real-estate-regulation/escrow-regulations

4. New York Banking Law
   - § 100 et seq.: Trust companies
   - NYDFS regulation of financial institutions

5. New York Rules of Professional Conduct
   - Rule 1.15 (22 NYCRR Part 1200): Safekeeping of property
   - N.Y. Judiciary Law § 497: IOLA accounts

6. New York Statute of Limitations
   - CPLR § 213(2): Breach of contract (6 years)
   - CPLR § 213(8): Fraud (6 years from act)
   - CPLR § 203(g): Fraud (2 years from discovery, if later)
   - UCC § 2-725: Breach of warranty (4 years)

7. New York General Obligations Law
   - § 5-1401: Choice of law ($250,000 threshold)
   - § 5-1402: Choice of forum ($1,000,000 threshold)

8. New York Tax
   - N.Y. Tax Law § 601: Individual income tax (top rate 10.9%)
   - NYC income tax (up to 3.876%)
   - Corporate business tax (7.25% under Article 9-A)

9. New York Commercial Division - 22 NYCRR § 202.70

10. ABA Model Asset Purchase Agreement (reference for M&A indemnity market terms)

11. American Bar Association, Private Target Mergers & Acquisitions Deal Points Study

This template is provided by ezel.ai for informational purposes only and does not constitute legal advice. It must be reviewed and customized by a qualified attorney licensed in New York before use. Laws and regulations change frequently; verify all citations and amounts before relying on this document.

Last Updated: 2026-02-26