ESCROW AGREEMENT
Exhibit 10.4
THIS
ESCROW AGREEMENT (together with any amendments or supplements
hereto, this “Agreement”) is made and
entered into as of September 23, 2020, by and among ImageWare
Systems, Inc., a Delaware Corporation,
(the “Company”),
and Citibank, N.A., as escrow agent (the “Escrow Agent”, and
together with the Company, each a “Party” and, collectively,
the “Parties”). Capitalized
terms used herein which are not defined herein shall have the
meanings set forth for such terms in the Purchase Agreement (as
defined below); provided,
however, that the Escrow Agent shall not be deemed to have
any knowledge of or duty to ascertain the meaning of any
capitalized term not otherwise defined in this
Agreement.
RECITALS
WHEREAS, the
Company and the Purchasers are parties to that certain Securities
Purchase Agreement, dated as of September 28, 2020, by and among
the Company and the Purchasers (as such agreement may be amended,
restated, supplemented or otherwise modified from time to time in
accordance with its terms, the “Purchase Agreement”),
pursuant to which the Purchasers, severally and not jointly, will
purchase from the Company, and the Company will issue and sell to
the Purchasers the Preferred Stock, on the terms and subject to the
conditions of the Purchase Agreement;
WHEREAS, pursuant
to Section 1(b)(ii) of the Purchase Agreement, on the Effective
Date, each of the Purchasers agrees to deposit into escrow certain
funds to be held and distributed by the Escrow Agent in accordance
with the terms of the Purchase Agreement and this Agreement;
and
WHEREAS, the
Company and the Purchasers are parties to that certain Loan and
Security Agreement (the “Loan and Security
Agreement”), dated as of September 28, 2020, by and
between the Company and the Purchasers, pursuant to which the
Purchasers will provide a short-term, convertible term loan to the
Company, the outstanding principal balance of which will be used to
purchase shares of Preferred Stock at the Closing.
NOW
THEREFORE, in consideration of the foregoing and of the mutual
covenants hereinafter set forth, the Parties agree as
follows:
1.
Appointment. The Company hereby
appoints the Escrow Agent as the escrow agent for the purposes set
forth herein. The Escrow Agent hereby accepts such appointment and
agrees to act as escrow agent in accordance with the terms and
conditions set forth herein.
2.
Escrow Funds.
(a)
Simultaneous with
the execution and delivery of this Agreement, certain Purchasers
are depositing with the Escrow Agent, such Purchaser’s
Initial Purchase Price in immediately available funds into an
escrow account established by the Escrow Agent for such purpose
(the “Escrow
Account”). The amounts deposited by each of the
Purchasers, along with any Additional Deposit (as defined herein)
shall constitute the “Escrow Funds”. The
Company shall notify the Escrow Agent of each Purchaser’s
Initial Purchase Price being deposited as soon as such amounts are
known. The Escrow Agent shall acknowledge receipt of the Initial
Purchase Price and the Additional Deposit (as defined below),
together with all products and proceeds thereof, including all
interest, dividends, gains and other income (collectively, the
“Escrow
Earnings”) earned with respect thereto (collectively,
the “Escrow
Funds”).
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(b)
For greater
certainty, all Escrow Earnings shall be retained by the Escrow
Agent and reinvested in the Escrow Funds and shall become part of
the Escrow Funds, and shall be disbursed as part of the Escrow
Funds in accordance with the terms and conditions of this
Agreement.
3.
Investment of Escrow
Funds.
(a)
Unless otherwise
instructed in writing and executed by an authorized representative
of the Company as set forth on Exhibit A (each a
“Representative”), the
Escrow Agent shall invest the Escrow Funds in a
non-interest-bearing deposit obligation of Citibank N.A., insured
by the Federal Deposit Insurance Corporation (“FDIC”) to the applicable
limits. The Escrow Funds shall at all times remain available for
distribution in accordance with Section 4 below.
(b)
The Escrow Agent
shall send an account statement to the Company on a monthly basis
reflecting activity in the Escrow Account for the preceding
month.
(c)
The Escrow Agent
shall have no responsibility for any investment losses resulting
from the investment, reinvestment or liquidation of the Escrow
Funds, provided that the Escrow Agent has made such investment,
reinvestment or liquidation of the Escrow Funds in accordance with
the terms, and subject to the conditions of this Agreement. The
Escrow Agent does not have a duty nor will it undertake any duty to
provide investment advice.
4.
Disposition and Termination of the
Escrow Funds.
(a)
Escrow Funds. The Company shall
act in accordance with, and the Escrow Agent shall hold and release
the Escrow Funds related to a Purchaser as provided in this
Section 4(a) as
follows:
(i)
The Company agrees
to direct the Escrow Agent on the date hereof by Release
Instruction, to disburse all of the Escrow Funds to the Company on
the date hereof, pursuant to Section 2.1 of the Loan and Security
Agreement. Upon receipt of a Release Instruction with respect to
the Initial Purchase Price, the Escrow Agent shall promptly, but in
any event within two (2) Business Days after receipt of a Release
Instruction, disburse all or part of the Initial Purchase Price in
accordance with such Release Instruction.
(ii)
Following the
Effective Date, upon receipt of one or more additional deposits
from certain Additional Purchasers (any such additional deposit, an
“Additional
Deposit”), the Company agrees to direct the Escrow
Agent, upon submission of a Release Instruction, pursuant to and in
accordance with the Loan and Security Agreement, to disburse the
Escrow Funds to the Company. The Company shall notify the Escrow
Agent of such Additional Deposit as soon as such amounts are known.
Upon receipt of a Release Instruction with respect to any
Additional Deposit, the Escrow Agent shall promptly, but in any
event within two (2) Business Days after receipt of a Release
Instruction, disburse all or part of the Additional Deposit in
accordance with such Release Instruction.
(iii)
Upon receipt by the
Escrow Agent of a copy of a Final Determination from the Company,
the Escrow Agent shall on the fifth (5th) Business Day following
receipt of such determination, disburse as directed, part or all,
as the case may be, of the applicable Escrow Funds (but only to the
extent funds are available in the Escrow Funds) in accordance with
such Final Determination. The Escrow Agent will act on such Final
Determination without further inquiry.
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(iv)
All payments of any
part of the Escrow Funds shall be made by wire transfer of
immediately available funds or check as set forth in the Release
Instruction or Final Determination, as applicable.
Any instructions setting forth, claiming,
containing, objecting to, or in any way related to the
transfer or distribution of any funds
on deposit in the Escrow Account under the terms of this Agreement
must be in writing, executed on behalf the Company by a
Representative as set forth on Exhibit A attached hereto, and
delivered to the Escrow Agent as an attachment to an e-mail
received on a Business Day sent to the e-mail address set forth in
Section 11 below
(with receipt by the Escrow Agent confirmed). In the event any
instruction is delivered to the Escrow Agent, the Escrow Agent is
authorized to seek confirmation of such instruction by telephone
call back to the person or persons designated on Exhibit A annexed hereto
(the “Call Back
Authorized Individuals”), and the Escrow Agent may
rely upon the confirmations of anyone purporting to be a Call Back
Authorized Individual. To assure accuracy of the instructions it
receives, the Escrow Agent may record such call backs. If the
Escrow Agent is unable to verify the instructions, or is not
satisfied with the verification it receives, it will not execute
the instruction until all such issues have been resolved. The
persons and telephone numbers for call backs may be changed only in
writing, executed by a Representative, actually received and
acknowledged by the Escrow Agent.
(b)
Certain
Definitions.
(ii)
“Final Determination”
means a final non-appealable order of any court having jurisdiction
pursuant to Section
13 together with (A) a certificate executed by a
Representative to the effect that such order is final and
non-appealable and (B) the written payment instructions executed by
a Representative to effectuate such order.
(iii)
“Person” means an
individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity or
any department, agency or political subdivision
thereof.
(iv)
“Release Instruction”
means the written instruction, in the form attached hereto as
Exhibit B, executed
by a Representative of the Company directing the Escrow Agent to
disburse all or a portion of the Escrow Funds, as
applicable.
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5.
Escrow Agent. The Escrow Agent
undertakes to perform only such duties as are expressly set forth
herein, which shall be deemed purely ministerial in nature, and no
duties, including but not limited to
any fiduciary duties, shall be implied. The Escrow Agent
shall neither be responsible for, nor chargeable with, knowledge
of, nor have any requirements to comply with, the terms and
conditions of any other agreement, instrument or document between
the Parties, in connection herewith, if any, including without
limitation the Purchase Agreement, nor shall the Escrow Agent be
required to determine if any Person has complied with any such
agreements, nor shall any additional obligations of the Escrow
Agent be inferred from the terms of such agreements, even though
reference thereto may be made in this Agreement. Notwithstanding the terms of any other agreement
between the Parties, the terms and conditions of this Agreement
will control the actions of Escrow Agent. The Escrow Agent
may rely upon and shall not be liable for acting or refraining from
acting upon any Release Instruction or Final Determination
furnished to it hereunder and believed by it to be genuine and to
have been signed by a Representative. Concurrent with the execution
of this Agreement, the Company shall deliver to the Escrow Agent
authorized representative’s forms in the form of Exhibit A attached hereto. The
Escrow Agent shall be under no duty to inquire into or investigate
the validity, accuracy or content of any such document, notice,
instruction or request. The Escrow Agent shall have no duty to
solicit any payments which may be due to the Escrow Agent or the
Escrow Funds. In the event that the Escrow Agent shall be uncertain
as to its duties or rights hereunder or shall receive instructions,
claims or demands from the Company which, in the Escrow
Agent’s opinion, conflict with any of the provisions of this
Agreement, it shall be entitled to refrain from taking any action
and its sole obligation shall be to keep safely all property held
in escrow until it shall be directed otherwise by the Company. The
Escrow Agent may interplead all of the assets held hereunder into a
court having jurisdiction pursuant to Section 13 or may seek a
declaratory judgment with respect to certain circumstances, and
thereafter be fully relieved from any and all liability or
obligation with respect to such interpleaded assets or any action
or nonaction based on such declaratory judgment. The Escrow Agent
may consult with legal counsel of its selection in the event of any
dispute or question as to the meaning or construction of any of the
provisions hereof or its duties hereunder. The Escrow
Agent will not be liable for any action taken, suffered or omitted
to be taken by it in good faith except to the extent that the
Escrow Agent’s fraud, gross negligence or willful misconduct
was the cause of any direct loss to either Party. To the extent
practicable, the Company agrees to pursue any redress or recourse
in connection with any dispute (other than with respect to a
dispute involving the Escrow Agent) without making the Escrow Agent
a party to the same. Anything in this Agreement to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for
any special, indirect, punitive, incidental or consequential losses
or damages of any kind whatsoever (including but not limited to
lost profits), even if the Escrow Agent has been advised of the
likelihood of such losses or damages and regardless of the form of
action.
6.
Resignation and Removal of Escrow
Agent. The Escrow Agent (a) may resign and be discharged
from its duties or obligations hereunder by giving thirty (30)
calendar days advance notice in writing of such resignation to the
Company specifying a date when such resignation shall take effect
or (b) may be removed, with or without cause, by the Company at any
time by providing written notice to the Escrow Agent. Any
corporation or association into which the Escrow Agent may be
merged or converted or with which it may be consolidated, or any
corporation or association to which all or substantially all of the
escrow business of the Escrow Agent’s line of business may be
transferred, shall be the Escrow Agent under this Agreement without
further act. The Escrow Agent’s sole responsibility after
such thirty (30) day notice period expires or after receipt of
written notice of removal shall be to hold and safeguard the Escrow
Funds (without any obligation to reinvest the same) and to deliver
the same (i) to a substitute or successor escrow agent pursuant to
a written designation from the Company, (ii) as set forth in a
Release Instruction or (iii) in accordance with the directions of a
Final Determination, and, at the time of such delivery, the Escrow
Agent’s obligations hereunder shall cease and terminate. In
the event the Escrow Agent resigns, if the Company has failed to
appoint a successor escrow agent prior to the expiration of thirty
(30) calendar days following receipt of the notice of resignation,
the Escrow Agent may petition any court having jurisdiction
pursuant to Section
13 for the appointment of such a successor escrow agent or
for other appropriate relief, and any such resulting appointment
shall be binding upon all of the parties hereto.
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7.
Fees and Expenses. All fees and
expenses of the Escrow Agent are described in Schedule 1 attached hereto and
shall be paid by the Company. The fees agreed upon for the services
to be rendered hereunder are intended as full compensation for the
Escrow Agent services as contemplated by this Agreement and shall
be paid upon funding of the Escrow Account.
8.
Indemnity. The Company shall
indemnify, defend, and hold harmless the Escrow Agent and its
affiliates and their respective successors, assigns, directors,
officers, agents and employees (the “Indemnitees”) from and
against any and all losses, damages, claims, liabilities,
penalties, judgments, settlements, actions, suits, proceedings,
litigation, investigations, or reasonable and documented out of
pocket costs or expenses (including the reasonable and documented
out of pocket fees and expenses of one outside counsel and experts
and their staffs and reasonable and documented out of pocket
expenses of document location, duplication and shipment)
(collectively “Escrow Agent Losses”)
arising out of or in connection with (a) the Escrow Agent’s
execution and performance of this Agreement, tax reporting or
withholding, the enforcement of any rights or remedies under or in
connection with this Agreement, or as may arise by reason of any
act, omission or error of the Indemnitee, except to the extent that
such Escrow Agent Losses, as adjudicated by a court of competent
jurisdiction, have been caused by the fraud, gross negligence or
willful misconduct of such Indemnitee, or (b) its following any
instructions or other directions from the Company. The Parties acknowledge that the
foregoing indemnities shall survive the resignation or removal of
the Escrow Agent and the termination of this Agreement.
9.
Tax Matters.
(a)
The Company shall
be responsible for and the taxpayer on all taxes due on the
interest or income earned, if any, on the Escrow Funds for the
calendar year in which such interest or income is earned. The
Escrow Agent shall report any interest or income earned on the
Escrow Funds to the IRS or other taxing authority on IRS Form 1099.
Prior to the date hereof, the Parties shall provide the Escrow
Agent with certified tax identification numbers by furnishing
appropriate forms W-9 or W-8 as applicable and such other forms and
documents that the Escrow Agent may request.
(b)
The Escrow Agent
shall be responsible only for income reporting to the Internal
Revenue Service with respect to income earned on the Escrow Funds.
The
Escrow Agent shall withhold any taxes required to be withheld by
applicable law, including but not limited to required withholding
in the absence of proper tax documentation, and shall remit such
taxes to the appropriate authorities.
(c)
The Escrow Agent,
its affiliates, and its employees are not in the business of
providing tax or legal advice to any taxpayer outside of Citigroup,
Inc. and its affiliates. This Agreement and any amendments or
attachments hereto are not intended or written to be used, and may
not be used or relied upon, by any such taxpayer or for the purpose
of avoiding tax penalties. Any such taxpayer should seek advice
based on the taxpayer's particular circumstances from an
independent tax advisor.
10.
Covenant of Escrow Agent. The
Escrow Agent hereby agrees and covenants with the Company that it
shall perform all of its obligations under this Agreement and shall
not deliver custody or possession of any of the Escrow Funds to
anyone except pursuant to the express terms of this Agreement or as
otherwise required by law.
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11.
Notices. All notices, requests,
demands and other communications required under this Agreement
shall be in writing, in English, and shall be deemed to have been
duly given if delivered simultaneously to the Company and the
Escrow Agent (i) personally, (ii) on the day of transmission if
sent by electronic mail (“e-mail”) with a PDF
attachment executed by a Representative or an authorized signatory
of the Escrow Agent, as applicable, to the e-mail address given
below, and written confirmation by electronic mail of receipt is
obtained promptly after completion of the transmission, (iii) by
overnight delivery with a reputable national overnight delivery
service, or (iv) by certified mail, return receipt requested, and
postage prepaid. If any notice is mailed, it shall be deemed given
five Business Days after the date such notice is deposited with the
United States Postal Service. If notice is given to a Party, it
shall be given at the address for such Party set forth below. It
shall be the responsibility of the Parties to notify the other
Party in writing of any name or address changes.
if to the Company, then
to:
ImageWare Systems,
Inc.
00000
Xxxxxxx Xxxxx Xxxxx X.
Xxxxx
000
Xxx
Xxxxx, Xxxxxxxxxx 00000
E-mail:
xxxxxxx@xxxxxx.xxx
Attention: Chief
Financial Officer
with a copy simultaneously transmitted
by like means (which transmittal shall not constitute notice
hereunder) to:
Disclosure Law
Group, a Professional Corporation
000
Xxxx Xxxxxxxx, Xxxxx 000
Xxx
Xxxxx, XX 00000
Telephone No.:
(000) 000-0000
Facsimile No.:
(000) 000-0000
E-mail:
xxxxxxx@xxxxxxxxxxxxxxxxxx.xxx
Attention: Xxxxxx
X. Xxxxxx, Managing Director
or, if to the Escrow Agent, then
to:
Citibank,
N.A.
Citi
Private Bank
000
Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx
Xxxx, XX 00000
Attn:
Xxxxxx Xxxxxxx
Telephone No.:
(000) 000-0000
Facsimile No.:
(000) 000-0000
E-mail:
xxxxx.xxxxxxx@xxxx.xxx
Notwithstanding
the above, in the case of communications delivered to the Escrow
Agent pursuant to the foregoing clause (i) through (iv) of this
Section 11, such communications
shall be deemed to have been given on the date received by the
Escrow Agent. In the event that the Escrow Agent, in its sole
discretion, shall determine that an emergency exists, the Escrow
Agent may use such other means of communication as the Escrow Agent
deems appropriate.
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12.
Termination. This Agreement
shall terminate on the earliest to occur of (a) receipt of notice
in writing from a Representative confirming that the Closing Date
has occurred, and (b) subject to Section 6, (i) delivery to the
Escrow Agent of a written notice of termination executed by the
Company or (ii) the Escrow Agent’s delivery of a notice of
resignation to the Company, after which this Agreement shall be of
no further force and effect except that the provisions of
Section 8 hereof
shall survive termination.
13.
Miscellaneous. The provisions
of this Agreement may be waived, altered, amended or supplemented,
in whole or in part, only by a writing signed by the Company and
the Escrow Agent. Neither this Agreement nor any right or interest
hereunder may be assigned in whole or in part by any Party hereto,
except as provided in Section 6, without the prior
consent of the Escrow Agent. This Agreement shall be governed by
and construed under the laws of the State of New York. Each Party
irrevocably waives any objection on the grounds of venue, forum
non-conveniens or any similar grounds and irrevocably consents to
service of process by mail or in any other manner permitted by
applicable law and consents to the jurisdiction of the courts
located in the State of New York. The Parties hereby waive any
right to a trial by jury with respect to any lawsuit or judicial
proceeding arising from or relating to this Agreement. This
Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall
constitute one and the same instrument. All signatures of the
Parties to this Agreement may be transmitted by facsimile or
electronic transmission in portable document format (.pdf), and
such facsimile or .pdf will, for all purposes, be deemed to be the
original signature of such Party whose signature it reproduces, and
will be binding upon such Party. If any provision of this Agreement
is determined to be prohibited or unenforceable by reason of any
applicable law of a jurisdiction, then such provision shall, as to
such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions
thereof, and any such prohibition or unenforceability in such
jurisdiction shall not invalidate or render unenforceable such
provisions in any other jurisdiction. The Parties represent,
warrant and covenant that each document, notice, instruction or
request provided by such Party to the Escrow Agent shall comply
with applicable laws and regulations. Where, however, the
conflicting provisions of any such applicable law may be waived,
they are hereby irrevocably waived by the Parties hereto to the
fullest extent permitted by law, to the end that this Agreement
shall be enforced as written. Except as expressly provided in
Section 8, nothing
in this Agreement, whether express or implied, shall be construed
to give to any person or entity other than the Escrow Agent and the
Company any legal or equitable right, remedy, interest or claim
under or in respect of this Agreement or any funds escrowed
hereunder.
14.
Compliance with Court Orders.
In the event that any Escrow Funds shall be attached, garnished or
levied upon by any court order, or the delivery thereof shall be
stayed or enjoined by an order of a court, or any order, judgment
or decree shall be made or entered by any court order affecting the
property deposited under this Agreement, the Escrow Agent is hereby
expressly authorized, in its sole discretion, to obey and comply
with all writs, orders or decrees so entered or issued, which it is
advised by legal counsel of its own choosing is binding upon it,
whether with or without jurisdiction, and in the event that the
Escrow Agent obeys or complies with any such writ, order or decree
it shall not be liable to any of the Parties or to any other
Person, by reason of such compliance notwithstanding such writ,
order or decree be subsequently reversed, modified, annulled, set
aside or vacated.
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15.
Further Assurances. Following
the date hereof, each party shall deliver to the other parties such
further information and documents and shall execute and deliver to
the other parties such further instruments and agreements as any
other party shall reasonably request to consummate or confirm the
transactions provided for herein, to accomplish the purpose hereof
or to assure to any other party the benefits hereof.
16.
Assignment. No assignment of
the interest of any of the Company shall be binding upon the Escrow
Agent unless and until written notice of such assignment shall be
filed with and consented to by the Escrow Agent (such consent not
to be unreasonably withheld). Any transfer or assignment of the
rights, interests or obligations hereunder in violation of the
terms hereof shall be void and of no force or effect.
17.
Force Majeure. The Escrow Agent
shall not incur any liability for not performing any act or
fulfilling any obligation hereunder by reason of any occurrence
beyond its control (including, but not limited to, any provision of
any present or future law or regulation or any act of any
governmental authority, any act of God or war or terrorism, or the
unavailability of the Federal Reserve Bank wire services or any
electronic communication facility), it being understood that the
Escrow Agent shall use commercially reasonable efforts which are
consistent with accepted practices in the banking industry to
resume performance as soon as reasonably practicable under the
circumstances.
18.
Compliance with Federal
Law. To help the U.S. Government fight the funding of
terrorism and money laundering activities and to comply with
federal law requiring financial institutions to obtain, verify and
record information on the source of funds deposited to an account,
the Company agrees to provide the Escrow Agent with the name,
address, taxpayer identification number, and remitting bank for all
Purchasers depositing funds into the Escrow Account pursuant to the
terms and conditions of this Agreement. For a non-individual person
such as a business entity, a charity, a trust or other legal
entity, the Escrow Agent will ask for documentation to verify its
formation and existence as a legal entity. The Escrow Agent may
also ask to see financial statements, licenses, identification and
authorization documents from individuals claiming authority to
represent any entity or other relevant documentation.
19.
Use of Citibank
Name. No publicly distributed printed or other material in
any language, including prospectuses, notices, reports, and
promotional material which mentions “Citibank” by name
or the rights, powers, or duties of the Escrow Agent under this
Agreement shall be issued by any other parties hereto, or on such
party’s behalf, without the prior written consent of the
Escrow Agent. By
execution of this Agreement, the Escrow Agent consents to (i) the
disclosure and distribution of this Agreement to any
Purchaser.
20.
Conflicts. The Parties
agree and acknowledge that to the extent any terms and provisions
of this Agreement are in any way inconsistent with or in conflict
with any term, condition or provision of the Purchase Agreement, as
between the Company and the Purchasers, the Purchase Agreement
shall govern and control.
* * * *
*
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
IMAGEWARE SYSTEMS,
INC.:
By:
/s/ Xxxxxxx
Xxxxxx
Name: Xxxxxxx
Xxxxxx
Its: Chief
Executive Officer
ESCROW AGENT:
CITIBANK,
N.A.
By:
/s/ Xxxxx XxXxxxx
Name: Xxxxx
XxXxxxx
Its:
Senior Vice President Citi Private Bank
[EXHIBITS
INTENTIONALLY OMITTED]
Signature Page to Escrow Agreement
NY 7382149
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