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An escrow arrangement is set up by a neutral third party to hold funds or other assets that will be exchanged in a transaction involving a buyer and seller. In an M&A deal, an escrow account is typically used to ensure that the buyer and seller will fulfil their respective financial and other obligations.
Indemnity clauses under SPAs protect the purchaser against the breach of representations and warranties given by the seller, as a means of allocating risks and liabilities.
Indemnity Escrow Period: This is the length of time after the transaction closes that the indemnity escrow is held before being released to the seller. This can be less than a year to greater than two years, but currently ran between 12 and 18 months.
Simply put, an indemnification clause lays out in legal language how one company (usually the buyer) will be compensated by another for losses they suffer after a merger or acquisition takes place.
The escrow instructions define the events and conditions that must take place and the manner in which the escrow agent shall deliver or release to the beneficiary of the escrow the assets, documents, and/or money held in escrow. The escrow instructions are commonly contemplated by the escrow agreement.
The escrow adjustment is the changes your servicer makes to your monthly payments. These changes will be specified in your annual escrow account statement. Mortgage servicers may adjust the monthly payment once per year based on the results of the escrow analysis.
An indemnification escrow is typically funded by setting aside and depositing a portion of the cash payable as purchase price with a third party (whether into an escrow account, a trust or a security deposit).
Indemnification hold-backs are a common mechanism used in M&A deals to manage potential post-closing risks and liabilities. They involve setting aside a portion of the purchase price in an escrow account for a specified period.