FAQs

We have answered the most frequently asked questions below. If you have any other questions, please get in touch with us.


What is an escrow agreement?

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An escrow agreement is a contract among a depositor, a beneficiary, and an escrow agent. Typically, the escrow agent is asked to hold and dispose of certain deposit materials as part of a larger transaction between the depositor and beneficiary. Often, the escrow agreement will have release conditions that are contingent upon certain performance deliverables by the depositor and other obligations of the beneficiary.

What is a software escrow agreement?

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A software escrow agreement is an escrow agreement that supports a software license agreement. In many cases, the escrow agent is asked to hold and dispose of software source code, build instructions and other proprietary information required by the beneficiary to support the licenses software if the depositor fails to meet their obligations of the license agreement.

What is a SaaS escrow agreement?

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SaaS escrow agreements are similar to software escrow agreements in that they often require the deposit of source code and other important information necessary to support an application in the long term but these agreements typically also require storage of the beneficiary’s data on an ongoing basis as well as some provision for a fail safe or hot site for the SaaS application as a disaster recovery provision in the event of depositor failure.

Why would I need an escrow agreement?

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Any time a company is reliant upon proprietary technology for business critical functions, an escrow agreement should be considered to provide an action plan for continued functionality in the event of vendor failure. Virtually any technology, process, recipe, secret, or other element can be proven, documented, and stored for contingent release.

What are the release conditions?

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Expert escrow agents can successfully administer a wide range of escrow release conditions. The escrow agent should not be relied upon to prove or disprove the occurrence of release conditions, but rather they should administer their proven release process without prejudice. Escrow release conditions should be carefully negotiated as part of the overall agreement and associated escrow agreement. Typical release conditions include: ● Bankruptcy of the depositor (i.e. Software vendor) ● Failure to meet support obligations of the license or services agreement. ● Total cessation of business. Less typical release conditions may include: ● Acquisition by a competitor of beneficiary. ● Fee increases in excess of some previously negotiated cap. ● Sunsetting of a product Virtually any release condition can be administered by an experienced escrow agent provided that their process is clear and a dispute resolution process is clearly specified.

Who pays for an escrow agreement?

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This is an often-negotiated component of the escrow. As a general rule of thumb, the beneficiary pays the escrow fees either directly or indirectly. It is also common for depositors to add a markup or administrative fees for their costs, efforts and risks associated with the escrow.

How do I know if the escrow deposit is complete and / or functional?

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There are a few ways to handle this issue: The most common approach is to hire the escrow agent to test the materials held in their possession in a “simulated release” fashion to determine if all materials are present to support the technology without input from the depositor. This approach is the most independent method and removes risk for both the depositor and beneficiary. An alternative approach is for the beneficiary to witness preparation of the escrow deposit at the depositor’s location. This approach often omits much of the build up process as the depositor has the build environment functioning already.

How do I file for a release of the escrow deposit materials?

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The typical release process includes a written request for a release of the deposit materials and requires a sworn statement by an officer of the beneficiary confirming the limits on usage allowed under the license agreement. The length of the escrow release process can vary from a few days to 90 days depending upon the negotiated circumstances and importance of the technology.

Where are the escrow deposit materials stored?

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Traditionally software and technology escrow deposits have been stored in media vault facilities designed for the protection and preservation of magnetic media. Increasingly escrow deposits and the associated user data are stored in an encrypted form on electronic vaults. This allows for significantly more frequent updates, easy redundancy and expedited release when needed.

When should the escrow agreement be established?

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The depositor and beneficiary are often at odds on this issue. Commonly depositors view a request or requirement for an escrow agreement as an insult or some form of distrust. Also, the escrow means extra work and risk for the depositor so they are often reluctant to agree to and fulfill the escrow. The beneficiary is simply trying to protect their business and their investment. As such, the escrow agreement should be negotiated in tandem with the larger agreement (i.e. Software license, SaaS agreement & etc.) and signed at the same time as the larger agreement. Once the larger agreement is signed, the beneficiary loses all leverage with regards to requiring the depositor to fulfill their escrow requirements. The signed escrow agreement is the first step on the continuum of escrow protection, but it Is critical because without the agreement in place the balance of the protections cannot be accessed.