ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as of
December 27, 2005 TECH LABORATORIES, INC., a New Jersey corporation (the
"Company"); the Buyer(s) listed on the Securities Purchase Agreement, dated the
date hereof (also referred to as the "Investor(s)"), and XXXXX XXXXXXXX, ESQ.,
as Escrow Agent hereunder (the "Escrow Agent").
BACKGROUND
WHEREAS, the Company and the Investor(s) have entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement"), dated as of the date
hereof, pursuant to which the Company proposes to sell secured convertible
debentures (the "Convertible Debentures") which shall be convertible into the
Company's Common Stock, par value $0.01 per share (the "Common Stock"), for a
total purchase price of up to Three Hundred Thousand Dollars ($300,000). The
Securities Purchase Agreement provides that the Investor(s) shall deposit the
purchase amount in a segregated escrow account to be held by Escrow Agent in
order to effectuate a disbursement to the Company at a closing to be held as set
forth in the Securities Purchase Agreement (the "Closing").
WHEREAS, the Company intends to sell Convertible Securities (the
"Offering").
WHEREAS, Escrow Agent has agreed to accept, hold, and disburse the funds
deposited with it in accordance with the terms of this Agreement.
WHEREAS, in order to establish the escrow of funds and to effect the
provisions of the Securities Purchase Agreement, the parties hereto have entered
into this Agreement.
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed as
follows:
1. Definitions. The following terms shall have the following meanings when
used herein:
a. "Escrow Funds" shall mean the funds deposited with Escrow Agent
pursuant to this Agreement.
b. "Joint Written Direction" shall mean a written direction executed
by the Investor(s) and the Company directing Escrow Agent to disburse all
or a portion of the Escrow Funds or to take or refrain from taking any
action pursuant to this Agreement.
c. "Escrow Period" shall begin with the commencement of the Offering
and shall terminate upon the earlier to occur of the following dates:
(i) The date upon which Escrow Agent confirms that it has
received in the Escrow Account all of the proceeds of the sale of the
Convertible Debentures;
(ii) The expiration of twenty (20) days from the date of
commencement of the Offering (unless extended by mutual written
agreement between the Company and the Investor(s) with a copy of such
extension to Escrow Agent); or
(iii) The date upon which a determination is made by the Company
and the Investor(s) to terminate the Offering prior to the sale of all
the Convertible Debentures.
During the Escrow Period, the Company and the Investor(s) are aware that
they are not entitled to any funds received into escrow and no amounts deposited
in the Escrow Account shall become the property of the Company or the
Investor(s) or any other entity, or be subject to the debts of the Company or
the Investor(s) or any other entity.
2. Appointment of and Acceptance by Escrow Agent. The Investor(s) and the
Company hereby appoint Escrow Agent to serve as Escrow Agent hereunder. Escrow
Agent hereby accepts such appointment and, upon receipt by wire transfer of the
Escrow Funds in accordance with Section 3 below, agrees to hold, invest and
disburse the Escrow Funds in accordance with this Agreement.
a. The Company hereby acknowledges that the Escrow Agent is general
counsel to the Investor(s), a partner in the general partner of the
Investor(s), and counsel to the Investor(s) in connection with the
transactions contemplated and referred herein. The Company agrees that in
the event of any dispute arising in connection with this Escrow Agreement
or otherwise in connection with any transaction or agreement contemplated
and referred herein, the Escrow Agent shall be permitted to continue to
represent the Investor(s) and the Company will not seek to disqualify such
counsel.
3. Creation of Escrow Funds. On or prior to the date of the commencement of
the Offering, the parties shall establish an escrow account with the Escrow
Agent, which escrow account shall be entitled as follows: Tech Laboratories,
Inc./Xxxxxxxxxx Equity Partners, Ltd. Escrow Account for the deposit of the
Escrow Funds. The Investor(s) will instruct subscribers to wire funds to the
account of the Escrow Agent as follows:
Bank: Wachovia, N.A. of New Jersey
Routing #: 000000000
Account #: 2000014931134
Name on Account: Xxxxx Xxxxxxxx Attorney Trust Account
Name on Sub-Account: Tech Laboratories, Inc./Xxxxxxxxxx Equity Partners, Ltd.
Escrow account
4. Deposits into the Escrow Account. The Investor(s) agrees that they shall
promptly deliver funds for the payment of the Convertible Debentures to Escrow
Agent for deposit in the Escrow Account.
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5. Disbursements from the Escrow Account.
a. The Escrow Agent will continue to hold such funds until Xxxxxxxxxx
Equity Partners, Ltd. on behalf of the Investor(s) and Company execute a
Joint Written Direction directing the Escrow Agent to disburse the Escrow
Funds pursuant to Joint Written Direction signed by the Company and the
Investor(s). In disbursing such funds, Escrow Agent is authorized to rely
upon such Joint Written Direction from the Company and the Investor(s) and
may accept any signatory from the Company listed on the signature page to
this Agreement and any signature from the Investor(s) that the Escrow Agent
already has on file.
b. In the event Escrow Agent does not receive the amount of the Escrow
Funds from the Investor(s), Escrow Agent shall notify the Company and the
Investor(s). Upon receipt of payment instructions from the Company, Escrow
Agent shall refund to each subscriber without interest the amount received
from each Investor(s), without deduction, penalty, or expense to the
subscriber. The purchase money returned to each subscriber shall be free
and clear of any and all claims of the Company, the Investor(s) or any of
their creditors.
c. In the event Escrow Agent does receive the amount of the Escrow
Funds prior to expiration of the Escrow Period, in no event will the Escrow
Funds be released to the Company until such amount is received by Escrow
Agent in collected funds. For purposes of this Agreement, the term
"collected funds" shall mean all funds received by Escrow Agent which have
cleared normal banking channels and are in the form of cash.
6. Collection Procedure. Escrow Agent is hereby authorized to deposit the
proceeds of each wire in the Escrow Account.
7. Suspension of Performance: Disbursement Into Court. If at any time,
there shall exist any dispute between the Company and the Investor(s) with
respect to holding or disposition of any portion of the Escrow Funds or any
other obligations of Escrow Agent hereunder, or if at any time Escrow Agent is
unable to determine, to Escrow Agent's sole satisfaction, the proper disposition
of any portion of the Escrow Funds or Escrow Agent's proper actions with respect
to its obligations hereunder, or if the parties have not within thirty (30) days
of the furnishing by Escrow Agent of a notice of resignation pursuant to Section
9 hereof, appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations (including
without limitation any disbursement obligations) under this Escrow
Agreement until such dispute or uncertainty shall be resolved to the sole
satisfaction of Escrow Agent or until a successor Escrow Agent shall be
appointed (as the case may be); provided however, Escrow Agent shall
continue to invest the Escrow Funds in accordance with Section 8 hereof;
and/or
b. petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in any venue
convenient to Escrow Agent, for instructions with respect to such dispute
or uncertainty, and to the extent required by law, pay into such court, for
holding and disposition in accordance with the instructions of such court,
all funds held by it in the Escrow Funds, after deduction and payment to
Escrow Agent of all fees and expenses (including court costs and attorneys'
fees) payable to, incurred by, or expected to be incurred by Escrow Agent
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in connection with performance of its duties and the exercise of its rights
hereunder.
c. Escrow Agent shall have no liability to the Company, the
Investor(s), or any person with respect to any such suspension of
performance or disbursement into court, specifically including any
liability or claimed liability that may arise, or be alleged to have
arisen, out of or as a result of any delay in the disbursement of funds
held in the Escrow Funds or any delay in with respect to any other action
required or requested of Escrow Agent.
8. Investment of Escrow Funds. Escrow Agent shall deposit the Escrow Funds
in a non-interest bearing account.
If Escrow Agent has not received a Joint Written Direction at any time that
an investment decision must be made, Escrow Agent shall maintain the Escrow
Funds, or such portion thereof, as to which no Joint Written Direction has been
received, in a non-interest bearing account.
9. Resignation and Removal of Escrow Agent. Escrow Agent may resign from
the performance of its duties hereunder at any time by giving thirty (30) days'
prior written notice to the parties or may be removed, with or without cause, by
the parties, acting jointly, by furnishing a Joint Written Direction to Escrow
Agent, at any time by the giving of ten (10) days' prior written notice to
Escrow Agent as provided herein below. Upon any such notice of resignation or
removal, the representatives of the Investor(s) and the Company identified in
Sections 13a.(iv) and 13b.(iv), below, jointly shall appoint a successor Escrow
Agent hereunder, which shall be a commercial bank, trust company or other
financial institution with a combined capital and surplus in excess of
$10,000,000.00. Upon the acceptance in writing of any appointment of Escrow
Agent hereunder by a successor Escrow Agent, such successor Escrow Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Escrow Agent, and the retiring Escrow Agent shall be
discharged from its duties and obligations under this Escrow Agreement, but
shall not be discharged from any liability for actions taken as Escrow Agent
hereunder prior to such succession. After any retiring Escrow Agent's
resignation or removal, the provisions of this Escrow Agreement shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Escrow Agent under this Escrow Agreement. The retiring Escrow Agent shall
transmit all records pertaining to the Escrow Funds and shall pay all funds held
by it in the Escrow Funds to the successor Escrow Agent, after making copies of
such records as the retiring Escrow Agent deems advisable and after deduction
and payment to the retiring Escrow Agent of all fees and expenses (including
court costs and attorneys' fees) payable to, incurred by, or expected to be
incurred by the retiring Escrow Agent in connection with the performance of its
duties and the exercise of its rights hereunder.
10. Liability of Escrow Agent.
a. Escrow Agent shall have no liability or obligation with respect to
the Escrow Funds except for Escrow Agent's willful misconduct or gross
negligence. Escrow Agent's sole responsibility shall be for the
safekeeping, investment, and disbursement of the Escrow Funds in accordance
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with the terms of this Agreement. Escrow Agent shall have no implied duties
or obligations and shall not be charged with knowledge or notice or any
fact or circumstance not specifically set forth herein. Escrow Agent may
rely upon any instrument, not only as to its due execution, validity and
effectiveness, but also as to the truth and accuracy of any information
contained herein, which Escrow Agent shall in good faith believe to be
genuine, to have been signed or presented by the person or parties
purporting to sign the same and conform to the provisions of this
Agreement. In no event shall Escrow Agent be liable for incidental,
indirect, special, and consequential or punitive damages. Escrow Agent
shall not be obligated to take any legal action or commence any proceeding
in connection with the Escrow Funds, any account in which Escrow Funds are
deposited, this Agreement or the Purchase Agreement, or to appear in,
prosecute or defend any such legal action or proceeding. Escrow Agent may
consult legal counsel selected by it in any event of any dispute or
question as to construction of any of the provisions hereof or of any other
agreement or its duties hereunder, or relating to any dispute involving any
party hereto, and shall incur no liability and shall be fully indemnified
from any liability whatsoever in acting in accordance with the opinion or
instructions of such counsel. The Company and the Investor(s) jointly and
severally shall promptly pay, upon demand, the reasonable fees and expenses
of any such counsel.
b. Escrow Agent is hereby authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to
the Escrow Funds, without determination by Escrow Agent of such court's
jurisdiction in the matter. If any portion of the Escrow Funds is at any
time attached, garnished or levied upon under any court order, or in case
the payment, assignment, transfer, conveyance or delivery of any such
property shall be stayed or enjoined by any court order, or in any case any
order judgment or decree shall be made or entered by any court affecting
such property or any part thereof, then and in any such event, Escrow Agent
is authorized, in its sole discretion, to rely upon and comply with any
such order, writ judgment or decree which it is advised by legal counsel
selected by it, binding upon it, without the need for appeal or other
action; and if Escrow Agent complies with any such order, writ, judgment or
decree, it shall not be liable to any of the parties hereto or to any other
person or entity by reason of such compliance even though such order, writ
judgment or decree may be subsequently reversed, modified, annulled, set
aside or vacated.
11. Indemnification of Escrow Agent. From and at all times after the
date of this Agreement, the parties jointly and severally, shall, to the
fullest extent permitted by law and to the extent provided herein,
indemnify and hold harmless Escrow Agent and each director, officer,
employee, attorney, agent and affiliate of Escrow Agent (collectively, the
"Indemnified Parties") against any and all actions, claims (whether or not
valid), losses, damages, liabilities, costs and expenses of any kind or
nature whatsoever (including without limitation reasonable attorney's fees,
costs and expenses) incurred by or asserted against any of the Indemnified
Parties from and after the date hereof, whether direct, indirect or
consequential, as a result of or arising from or in any way relating to any
claim, demand, suit, action, or proceeding (including any inquiry or
investigation) by any person, including without limitation the parties to
this Agreement, whether threatened or initiated, asserting a claim for any
legal or equitable remedy against any person under any statute or
regulation, including, but not limited to, any federal or state securities
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laws, or under any common law or equitable cause or otherwise, arising from
or in connection with the negotiation, preparation, execution, performance
or failure of performance of this Agreement or any transaction contemplated
herein, whether or not any such Indemnified Party is a party to any such
action or proceeding, suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the
right to be indemnified hereunder for liability finally determined by a
court of competent jurisdiction, subject to no further appeal, to have
resulted from the gross negligence or willful misconduct of such
Indemnified Party. If any such action or claim shall be brought or asserted
against any Indemnified Party, such Indemnified Party shall promptly notify
the Company and the Investor(s) hereunder in writing, and the Investor(s)
and the Company shall assume the defense thereof, including the employment
of counsel and the payment of all expenses. Such Indemnified Party shall,
in its sole discretion, have the right to employ separate counsel (who may
be selected by such Indemnified Party in its sole discretion) in any such
action and to participate and to participate in the defense thereof, and
the fees and expenses of such counsel shall be paid by such Indemnified
Party, except that the Investor(s) and/or the Company shall be required to
pay such fees and expense if (a) the Investor(s) or the Company agree to
pay such fees and expenses, or (b) the Investor(s) and/or the Company shall
fail to assume the defense of such action or proceeding or shall fail, in
the sole discretion of such Indemnified Party, to employ counsel reasonably
satisfactory to the Indemnified Party in any such action or proceeding, (c)
the Investor(s) and the Company are the plaintiff in any such action or
proceeding or (d) the named or potential parties to any such action or
proceeding (including any potentially impleaded parties) include both the
Indemnified Party, the Company and/or the Investor(s) and the Indemnified
Party shall have been advised by counsel that there may be one or more
legal defenses available to it which are different from or additional to
those available to the Company or the Investor(s). The Investor(s) and the
Company shall be jointly and severally liable to pay fees and expenses of
counsel pursuant to the preceding sentence, except that any obligation to
pay under clause (a) shall apply only to the party so agreeing. All such
fees and expenses payable by the Company and/or the Investor(s) pursuant to
the foregoing sentence shall be paid from time to time as incurred, both in
advance of and after the final disposition of such action or claim. The
obligations of the parties under this section shall survive any termination
of this Agreement, and resignation or removal of the Escrow Agent shall be
independent of any obligation of Escrow Agent.
The parties agree that neither payment by the Company or the Investor(s) of
any claim by Escrow Agent for indemnification hereunder shall impair, limit,
modify, or affect, as between the Investor(s) and the Company, the respective
rights and obligations of Investor(s), on the one hand, and the Company, on the
other hand.
12. Expenses of Escrow Agent. Except as set forth in Section 11 the Company
shall reimburse Escrow Agent for all of its reasonable out-of-pocket expenses,
including attorneys' fees, travel expenses, telephone and facsimile transmission
costs, postage (including express mail and overnight delivery charges), copying
charges and the like. All of the compensation and reimbursement obligations set
forth in this Section shall be payable by the Company, upon demand by Escrow
Agent. The obligations of the Company under this Section shall survive any
termination of this Agreement and the resignation or removal of Escrow Agent.
13. Warranties.
a. The Investor(s) makes the following representations and warranties
to Escrow Agent:
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(i) The Investor(s) has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary
action of the Investor(s), including any necessary approval of the
limited partner of the Investor(s) or necessary corporate approval, as
applicable, has been executed by duly authorized officers of the
Investor(s), enforceable in accordance with its terms.
(iii) The execution, delivery, and performance of the Investor(s)
of this Agreement will not violate, conflict with, or cause a default
under any agreement of limited partnership of Investor(s) or the
articles of incorporation or bylaws of the Investor(s) (as
applicable), any applicable law or regulation, any court order or
administrative ruling or degree to which the Investor(s) is a party or
any of its property is subject, or any agreement, contract, indenture,
or other binding arrangement.
(iv) Xxxx Xxxxxx has been duly appointed to act as the
representative of the Investor(s) hereunder and has full power and
authority to execute, deliver, and perform this Escrow Agreement, to
execute and deliver any Joint Written Direction, to amend, modify, or
waive any provision of this Agreement, and to take any and all other
actions as the Investor(s)'s representative under this Agreement, all
without further consent or direction form, or notice to, the
Investor(s) or any other party.
(v) No party other than the parties hereto and the Investor(s)s
have, or shall have, any lien, claim or security interest in the
Escrow Funds or any part thereof. No financing statement under the
Uniform Commercial Code is on file in any jurisdiction claiming a
security interest in or describing (whether specifically or generally)
the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Investor(s)
contained herein are true and complete as of the date hereof and will
be true and complete at the time of any disbursement from the Escrow
Funds.
b. The Company makes the following representations and warranties to
the Escrow Agent:
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of New
Jersey and has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.
(ii) This Agreement has been duly approved by all necessary
corporate action of the Company, including any necessary shareholder
approval, has been executed by duly authorized officers of the
Company, enforceable in accordance with its terms.
(iii) The execution, delivery, and performance by the Company of
this Agreement is in accordance with the Securities Purchase Agreement
and will not violate, conflict with, or cause a default under the
certificate of incorporation or bylaws of the Company, any applicable
law or regulation, any court order or administrative ruling or decree
to which the Company is a party or any of its property is subject, or
any agreement, contract, indenture, or other binding arrangement,
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including without limitation to the Securities Purchase Agreement, to
which the Company is a party.
(iv) Xxxxx Xxxxxxxxx has been duly appointed to act as the
representative of the Company hereunder and has full power and
authority to execute, deliver, and perform this Agreement, to execute
and deliver any Joint Written Direction, to amend, modify or waive any
provision of this Agreement and to take all other actions as the
Company's Representative under this Agreement, all without further
consent or direction from, or notice to, the Company or any other
party.
(v) No party other than the parties hereto and the Investor(s)
have, or shall have, any lien, claim or security interest in the
Escrow Funds or any part thereof. No financing statement under the
Uniform Commercial Code is on file in any jurisdiction claiming a
security interest in or describing (whether specifically or generally)
the Escrow Funds or any part thereof.
(vi) All of the representations and warranties of the Company
contained herein are true and complete as of the date hereof and will
be true and complete at the time of any disbursement from the Escrow
Funds.
14. Consent to Jurisdiction and Venue. In the event that any party hereto
commences a lawsuit or other proceeding relating to or arising from this
Agreement, the parties hereto agree that the United States District Court for
the District of New Jersey shall have the sole and exclusive jurisdiction over
any such proceeding. If all such courts lack federal subject matter
jurisdiction, the parties agree that the Superior Court Division of New Jersey,
Chancery Division of Xxxxxx County shall have sole and exclusive jurisdiction.
Any of these courts shall be proper venue for any such lawsuit or judicial
proceeding and the parties hereto waive any objection to such venue. The parties
hereto consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept the service of process to vest personal
jurisdiction over them in any of these courts.
15. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
delivered to any overnight courier, or when transmitted by facsimile
transmission and upon confirmation of receipt and addressed to the party to be
notified as follows:
If to Investor(s), to: Xxxxxxxxxx Equity Partners, Ltd.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Portfolio Manager
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
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If to Escrow Agent, to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Company, to: Tech Laboratories, Inc.
c/o Anslow & Xxxxxx, LLP
000 Xxxxx 0 Xxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx
Telephone: (000) 000-0000
Or to such other address as each party may designate for itself by like notice.
16. Amendments or Waiver. This Agreement may be changed, waived, discharged
or terminated only by a writing signed by the parties hereto. No delay or
omission by any party in exercising any right with respect hereto shall operate
as waiver. A waiver on any one occasion shall not be construed as a bar to, or
waiver of, any right or remedy on any future occasion.
17. Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition, or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
18. Governing Law. This Agreement shall be construed and interpreted in
accordance with the internal laws of the State of New Jersey without giving
effect to the conflict of laws principles thereof.
19. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties relating to the holding, investment, and disbursement of the
Escrow Funds and sets forth in their entirety the obligations and duties of the
Escrow Agent with respect to the Escrow Funds.
20. Binding Effect. All of the terms of this Agreement, as amended from
time to time, shall be binding upon, inure to the benefit of and be enforceable
by the respective heirs, successors and assigns of the Investor(s), the Company,
or the Escrow Agent.
21. Execution of Counterparts. This Agreement and any Joint Written
Direction may be executed in counter parts, which when so executed shall
constitute one and same agreement or direction.
22. Termination. Upon the first to occur of the disbursement of all amounts
in the Escrow Funds pursuant to Joint Written Directions or the disbursement of
all amounts in the Escrow Funds into court pursuant to Section 7 hereof, this
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Agreement shall terminate and Escrow Agent shall have no further obligation or
liability whatsoever with respect to this Agreement or the Escrow Funds.
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IN WITNESS WHEREOF the parties have hereunto set their hands and seals the
day and year above set forth.
TECH LABORATORIES, INC.
By:/s/ Xxxxx Xxxxxxxxx
---------------------
Name: Xxxxx Xxxxxxxxx
Title: Chief Executive Officer
XXXXXXXXXX EQUITY PARTNERS, LTD.
By: Yorkville Advisors, LLC
Its: General Partner
By: /s/ Xxxx Xxxxxx
----------------
Name: Xxxx Xxxxxx
Title: Portfolio Manager
By: /s/ Xxxxx Xxxxxxxx, Esq.
-----------------------
Name: Xxxxx Xxxxxxxx, Esq.
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