Technology Escrow Arrangement – National Software Escrow, Inc. (NSE) holds “intellectual property” in escrow just as other escrow companies normally hold cash.
Although not a financial institution, NSE is very similar. NSE protects assets, and in this case, that asset would be “information”.
A “traditional” use for establishing a Technology Escrow Arrangement involves protecting two (2) parties (Technology Vendor and Licensee) in a License Agreement. This “traditional” approach provides the Licensee with access to the Technology Vendor’s intellectual property (i.e. source code and documentation), in the event that a specific, release/triggering event agreed upon by the Technology Vendor and Licensee occurs.
Can a Technology Escrow Agreement be used for other purposes? The answer is yes!
A Technology Escrow Agreement can also be used for “collateral purposes” in Credit Agreements. With this purpose in mind, the Technology Escrow Arrangement will involve protecting two (2) parties (Technology Vendor and Lender(s) in a Credit Agreement.
In a Credit Agreement, Lenders agree to make certain loans and other financial accommodations to a Technology Vendor. In return, as security for the repayment of such loans and obligations, the Technology Vendor grants to the Lender(s) a security interest in and lien on the Vendor’s assets, including, Programs and Source Code developed by the Technology Vendor.
To assure the continued availability and usefulness of the Programs and to protect the Lenders’ security interests in the Programs and Source Code, both parties (Vendor and Lender(s)) agree to an arrangement whereby the Programs and Source Code will be deposited and maintained in escrow for the life of the Credit Agreement.
So, what are possible release/triggering events for this type of Escrow Arrangement? The answer to this question depends on the events that the Lender(s) and Technology Vendor agree to as such. Under normal circumstances, an “Event of Default” is defined in the Credit Agreement between the Lender(s) and Technology Vendor. “Events of Default” defined in the Credit Agreement will apply to the release/triggering events defined in the Technology Escrow Agreement.
The Technology Escrow Agreement will, under normal circumstances, terminate upon the termination of the Credit Agreement; provided all obligations thereunder have been indefeasibly paid in full in cash and all commitments to lend there under have been terminated. In such an event, the Technology Vendor may obtain the return of the materials deposited into escrow by furnishing the Escrow Provider with a joint written notice with Lender(s) of termination or expiration.
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