Other distributions in respect of the escrow shares: Overview, definition, and example
What are other distributions in respect of the escrow shares?
Other distributions in respect of the escrow shares refer to any payments, benefits, or proceeds that may be allocated or distributed to the holders of escrow shares, apart from the main release of shares or cash outlined in the escrow agreement. These distributions can include dividends, interest, or other forms of income generated by the escrowed shares during the holding period. They are typically subject to the terms set forth in the escrow agreement and are distributed according to specific conditions agreed upon by the parties involved, such as the completion of certain milestones or events.
In simpler terms, this refers to additional payments or benefits from shares held in escrow, beyond the original agreement, like dividends or interest, that may be distributed to the relevant parties.
Why are other distributions in respect of the escrow shares important?
These distributions are important because they ensure that the holders of escrow shares receive any income or benefits generated by the shares while they are held in escrow. This can include earnings from dividends or interest accrued on the funds or shares. Understanding these distributions is key for all parties involved in the escrow arrangement, as they affect the financial benefits that the shareholders or parties in the agreement may receive during the escrow period.
For SMB owners, understanding the implications of other distributions in respect of escrow shares is crucial when negotiating escrow agreements, particularly if the business is involved in mergers, acquisitions, or other transactions that require shares to be held in escrow.
Understanding other distributions in respect of the escrow shares through an example
Let’s say that in a business acquisition, the seller agrees to place a portion of the shares into escrow for a period of time, contingent upon certain performance goals being met. During the holding period, the shares generate dividend income. The escrow agreement may specify that any dividends earned on the escrowed shares are considered "other distributions" and should be paid to the seller, even though the principal shares are still held in escrow.
For example, if the seller has 10,000 shares in escrow and these shares earn $5,000 in dividends during the holding period, the seller may receive the $5,000 in dividend payments (as other distributions), but the principal shares themselves will remain in escrow until the specified conditions are met.
Example of other distributions in respect of the escrow shares clause
Here’s how a clause related to other distributions in respect of the escrow shares might look in an escrow agreement:
“Any other distributions, including dividends or interest, accruing on the escrow shares during the escrow period, shall be paid to the Seller in accordance with the terms of this Agreement. The distribution of such income shall not affect the retention or release of the escrow shares, which shall remain subject to the conditions outlined in Section [insert section].”
Conclusion
Other distributions in respect of the escrow shares ensure that the holders of escrowed shares receive any benefits generated by the shares, such as dividends or interest, while the shares are being held under the terms of the escrow agreement. For SMB owners and businesses involved in transactions that include escrow arrangements, it is crucial to clearly understand and negotiate the terms surrounding these additional distributions to ensure fair treatment and proper allocation of income.
By accounting for these distributions in escrow agreements, businesses can manage the financial aspects of the transaction effectively, ensuring that the shareholders or parties involved receive the full benefits from their escrowed assets during the holding period.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.