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Exhibit 99-3
PLAN OF RECAPITALIZATION
AND
STOCK REPURCHASE AGREEMENT
DATED AS OF OCTOBER 31, 1997
By and Among
BIG 5 HOLDINGS CORP.
XXXXXX X. XXXXXX,
XXXXXX X. XXXXXX,
and
GREEN EQUITY INVESTORS, L.P.,
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PLAN OF RECAPITALIZATION AND
STOCK REPURCHASE AGREEMENT
This PLAN OF RECAPITALIZATION AND STOCK REPURCHASE AGREEMENT (the
"Agreement") is entered into as of October 31, 1997, by and among Big 5 Holdings
Corp., a Delaware corporation ("Parent"), Xxxxxx X. Xxxxxx ("XX Xxxxxx"), Xxxxxx
X. Xxxxxx ("XX Xxxxxx" and together with XX Xxxxxx, the "Millers") and Green
Equity Investors, L.P., a Delaware limited partnership ("GEI"), with respect to
the following facts and circumstances:
A. Parent and United Merchandising Corp., a California corporation
("UMC"), are wholly-owned subsidiaries of Big 5 Corporation, a Delaware
corporation ("Old Parent"). Parent, the Millers and GEI contemplate that UMC
will be merged into New Big 5 Corp., a Delaware corporation and wholly-owned
subsidiary of UMC ("Big 5"), with the result that UMC will be reincorporated in
Delaware (the "Subsidiary Merger") in a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Thereafter, Old Parent will be merged into Parent so that Parent will be the
successor corporation and Big 5 will become a wholly-owned subsidiary of Parent
(the "Parent Merger" and together with the Subsidiary Merger, the "Mergers") in
a tax-free reorganization under Section 368(a) of the Code. Upon completion of
the Mergers the name of Big 5 will be Big 5 Corp.
B. Thereafter the parties will use their respective best efforts to
cause Parent and Big 5 to effect, as hereinafter set forth, the following
transactions (collectively referred to as the "Recapitalization"): (i) Big 5
will cause the offering and issuance and sale to qualified institutional buyers
under Rule 144A or Regulation S of the Securities Act of 1933 (the "Offering")
of its Senior Notes due 2007 (the "Notes"); (ii) Big 5 will defease and call for
repayment all of its outstanding 13 5/8% Senior Subordinated Notes due 2002 (the
"Old Notes"); (iii) Parent will issue and sell its Discount Notes (the "Parent
Discount Notes") with a warrant to purchase approximately three percent of the
common stock, $0.01 par value of Parent (the "Common Stock") at a nominal
exercise price (the "Warrant") (together, the "Parent Note Financing"); (iv)
Parent will accelerate vesting of substantially all of the outstanding options
and restricted stock held by management and employees of Big 5; (v) Parent will
redeem for cash its existing Series A 9% Cumulative Redeemable Preferred Stock
(the "Parent Old Preferred") for approximately twenty one million nine hundred
thousand dollars ($21,900,000) in the aggregate, including accrued dividends;
(vi) Parent will pay a cash distribution of fifteen dollars ($15.00) per share
on its outstanding shares of Common Stock (approximately sixty three million two
hundred thousand
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dollars ($63,200,000) in the aggregate); (vii) Parent will repurchase from
Pacific Enterprises ("PE") that certain warrant dated September 25, 1992 to
purchase three hundred ninety seven thousand six hundred forty four (397,644)
shares of Common Stock and sixteen thousand six hundred sixty seven (16,667)
shares of Parent Old Preferred (the "PE Warrant") and will repurchase from the
Selling Stockholders (as hereinafter defined) approximately two million seven
hundred thirty seven thousand three hundred ten (2,737,310) shares of Common
Stock (of which GEI owns 86.8%) for an aggregate of approximately seventeen
million six hundred thirteen thousand four hundred ninety dollars ($17,613,490)
in cash and thirty five million dollars ($35,000,000) of Parent Senior
Exchangeable Preferred Stock (the "Parent New Preferred"); (viii) Parent will
sell additional Common Stock to middle and senior level management of Big 5; and
(ix) other transactions will occur, including a distribution from Big 5 to
Parent, so that the above referenced transactions can be effected and the
capital structure of Big 5 will be as set forth under "Capitalization" in
the Preliminary Offering Memorandum, subject to completion dated October 27,
1997 (the "Offering Memorandum").
C. Parent, GEI and the Millers desire, for their mutual benefit, to
enter into this Agreement to set forth their respective rights and obligations
with respect to the Recapitalization.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
The Recapitalization
1.1 Sale of Notes. As soon as practicable, Parent will use its best
efforts to cause Big 5 to issue and sell one hundred thirty one million dollars
($131,000,000) of Notes as described in the Offering Memorandum on terms
reasonably acceptable to the Millers and GEI.
1.2 Defeasance of Old Notes. Concurrently with the sale of the Notes,
Parent will cause Big 5 to defease and call for repayment all of the outstanding
Old Notes.
1.3 Sale of Parent Discount Notes. Concurrently with the sale of the
Notes, Parent will effect the Parent Note Financing for twenty four million five
hundred thousand dollars ($24,500,000) of proceeds, the terms and conditions of
the Parent Discount Notes and the Warrant to be reasonably acceptable to GEI and
the Millers.
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1.4 Acceleration of Vesting. Concurrently with the sale of the Notes,
Parent will accelerate vesting of substantially all of the issued and
outstanding employee stock options and restricted stock under the various
agreements respecting such options and restricted stock held by management and
employees of Big 5. Parent will facilitate the exercise of such stock options by
existing employees by offering to such employees the option to pay the aggregate
exercise price of such outstanding options (other than the par value of such
shares) by way of a personal recourse obligation secured by such employee's
existing Common Stock and the Common Stock to be issued pursuant to the exercise
of the options, the proceeds of such Common Stock and other payments.
1.5 Redemption of Parent Old Preferred. Pursuant to the Parent Merger,
Parent will issue to the holders of the Parent Old Preferred the same number of
shares of new preferred stock with terms substantially the same as the terms of
the Series A 9% Cumulative Redeemable Preferred Stock of Old Parent which is
presently outstanding. This Series A 9% Cumulative Redeemable Preferred Stock
will be immediately redeemed by Parent as hereinafter provided pursuant to
Section 5(c) of the Statement of Designation of Rights, Preferences, Privileges
and Restrictions with respect to the Series A 9% Cumulative Redeemable Preferred
Stock of Old Parent and the comparable provisions of the Certificate of
Incorporation of Parent (the "Statement"). As soon as practical after the date
hereof, Parent will make an offer, pursuant to Section 5(c) of the Statement, to
exchange all of such Parent Old Preferred for cash equal to the face amount of
the Parent Old Preferred plus accrued and unpaid dividends thereon to the date
of redemption (the "Exchange Consideration"), (the "Preferred Redemption").
Concurrently with, and conditional upon, the consummation of the
Recapitalization, GEI agrees to accept, and will accept, the Exchange
Consideration for all of its Parent Old Preferred, amounting to one hundred
twenty nine thousand nine hundred thirty two (129,932) shares out of a total of
one hundred forty nine thousand six hundred fifty four (149,654) outstanding
shares of Parent Old Preferred (amounting to eighty six point eighty two percent
(86.82%) of the Parent Old Preferred). Inasmuch as GEI owns in excess of
two-thirds (2/3) in interest of the Parent Old Preferred, GEI's acceptance of
the offer and receipt of the Exchange Consideration for its Parent Old Preferred
will result on the date of the Recapitalization in the mandatory redemption
pursuant to Section 5(c) of the Statement of all of the Parent Old Preferred
issued in the Parent Merger.
1.6 Distribution on Big 5 Common Stock. Promptly following the
transactions set forth in Sections 1.1 through 1.5 above, Parent will cause Big
5 to make a cash distribution of approximately eighty two million dollars
($82,000,000) to Parent.
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1.7 Distribution on Parent Common Stock. Promptly following the
transactions set forth in Sections 1.1 through 1.6 above, Parent will make a
cash distribution of fifteen dollars ($15.00) per share (the "Distribution") on
Parent's Common Stock. The record date for the Distribution shall be set so that
(i) the shares of Common Stock issued to senior and middle level management
pursuant to Section 1.9 below will not be entitled to the Distribution, but (ii)
the shares of Common Stock issued to employees of Big 5 upon the exercise of
employee stock options pursuant to the acceleration of vesting provided for in
Section 1.4 above will be entitled to the Distribution.
1.8 Repurchase of Parent Common Stock and PE Warrant.
1.8.1 Repurchase of Common Stock From Selling Stockholders.
Promptly following the transactions set forth in Sections 1.1 through 1.7 above,
Parent will purchase two million seven hundred thirty seven thousand three
hundred ten (2,737,310) shares of Common Stock in the aggregate from all persons
(or their successors and assigns) who purchased both Common Stock and Parent Old
Preferred of Old Parent in 1992 (the "Selling Stockholders"). Parent will
purchase seventy six point sixty six percent (76.66%) of the Common Stock owned
by each of the Selling Stockholders. It is a condition of this Agreement that
Parent purchase substantially all of such two million seven hundred thirty seven
thousand three hundred ten (2,737,310) shares of Common Stock in the aggregate.
The Common Stock will be purchased for cash and shares of Parent New Preferred,
amounting to eleven million nine hundred seven thousand two hundred ninety nine
dollars ($11,907,299) in cash and thirty one million four hundred ninety three
thousand dollars ($31,493,000) of liquidation preference of the Parent New
Preferred (the "Liquidation Value"), representing four dollars thirty five cents
($4.35) in cash and eleven dollars fifty cents and five xxxxx ($11.505) of
Liquidation Value per share of Common Stock repurchased by Parent.
1.8.2 GEI Offer to Sell Common Stock to Parent. As of the date of
this Agreement, GEI owns three million one hundred thousand one hundred sixty
(3,100,160) shares of Common Stock. GEI hereby agrees to offer to sell to Parent
on the date of the substantial consummation of the Recapitalization, conditional
upon the consummation of the Recapitalization, two million three hundred seventy
six thousand five hundred eighty three (2,376,583) shares of Common Stock,
representing seventy six point sixty six percent (76.66%) of the Common Stock
owned by GEI for ten million three hundred thirty eight thousand one hundred
thirty six dollars ($10,338,136) in cash and twenty seven million three hundred
forty two thousand six hundred dollars ($27,342,600) of Liquidation Value of the
Parent New Preferred.
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1.8.3 Fractional Shares. In the event of fractional shares of
Common Stock or Parent New Preferred, no fractional shares will be repurchased
or will be issued. Parent will round to the nearest whole share of Common Stock
in connection with the repurchase of Common Stock and to the nearest whole share
of Parent New Preferred based on a $100 Liquidation Value per share.
1.8.4 Repurchase of PE Warrant. Parent will, concurrently with
the repurchase of Common Stock from the Selling Stockholders, repurchase from PE
the PE Warrant for a payment of five million seven hundred six thousand one
hundred ninety one dollars ($5,706,191) in cash and thirty five thousand seventy
(35,070) shares of Parent New Preferred, representing three million five hundred
seven thousand dollars ($3,507,000) of Liquidation Value of the Parent New
Preferred.
1.9 Sale of Parent Common Stock to Management. Concurrently with the
transactions set forth in Section 1.8 above (other than the purchase from PE
referenced in clause 1.8.5), pursuant to Parent's 1997 Management Equity Plan,
Parent will sell to certain middle and senior level management employees of
Parent and Big 5 (as previously identified by the Millers) approximately four
hundred sixty two thousand and nine (462,009) shares of Common Stock for five
dollars ($5.00) per share pursuant to a form or forms of Management Subscription
and Stockholders Agreement reasonably acceptable to GEI and the Millers (the
"Management Agreement") for a total consideration of approximately two million
three hundred ten thousand forty five dollars ($2,310,045). To the extent that
any such management employees shall fail to purchase that number of shares of
Common Stock from Parent pursuant to the Management Agreement, the Millers agree
to arrange for the purchase of such shares by other management employee or
purchase such shares themselves, at the Millers' option, for five dollars
($5.00) per share.
ARTICLE 2
Interdependent Transactions; Representations; Termination
2.1 Interdependent Transactions. The parties hereto acknowledge that the
transactions constituting the Recapitalization are interdependent. In the event
that any of the transactions specified in Article 1 are not consummated
substantially on the terms and conditions set forth in the relevant section of
Article 1, then none of such transactions shall be consummated unless the
parties by written amendment to this Agreement shall agree otherwise prior to
the consummation of the transactions specified in Article 1.
2.2 Representations and Warranties of Parent.
Parent represents and warrants to the Millers and GEI as follows:
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2.2.1 Organization. It is a corporation duly organized and
validly existing under the laws of the State of Delaware.
2.2.2 Authority. It has full corporate power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
2.2.3 Binding Obligation. The execution, delivery and performance
of this Agreement by it and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on its part, and, assuming the due authorization, execution and
delivery of this Agreement by each of the other parties hereto, this Agreement
constitutes its binding obligation, enforceable against it in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws and equitable principles relating to or
limiting creditors' rights generally.
2.2.4 No Conflict. The execution, delivery and performance of
this Agreement by it and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both, (i) violate any provision of law, statute, rule or regulation to which it
is subject, (ii) violate any order, judgment or decree applicable to it, or
(iii) conflict with, or result in a breach or default under, any term or
condition of its certificate of incorporation or bylaws or any material
agreement or other material instrument to which it is a party or by which it or
its property is bound or affected.
2.3 Representations and Warranties of GEI. GEI represents and warrants
to the Millers and to Parent as follows:
2.3.1 Organization. It is a limited partnership duly organized
and validly existing under the laws of its state of organization.
2.3.2 Authority. It has full power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
2.3.3 Binding Obligation. The execution, delivery and performance
of this Agreement by it and the consummation by it of the transactions
contemplated hereby have been duly and validly authorized by all necessary
action on its part, and, assuming the due authorization, execution and delivery
of this Agreement by each of the other parties hereto, this Agreement
constitutes its binding obligation, enforceable against it in accordance with
its terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium
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and other similar laws and equitable principles relating to or limiting
creditors' rights generally.
2.3.4 No Conflict. The execution, delivery and performance of
this Agreement by it and the consummation by it of the transactions contemplated
hereby will not, with or without the giving of notice or the lapse of time or
both, (i) violate any provision of law, statute, rule or regulation to which it
is subject, (ii) violate any order, judgment or decree applicable to it, or
(iii) conflict with, or result in a breach or default under, any term or
condition of its charter, bylaws or equivalent governing documents or any
material agreement or other material instrument to which it is a party or by
which it or its property is bound or affected.
2.4 Representations and Warranties of the Millers. Each of the Millers,
severally and not jointly, represents and warrants to GEI and to Parent as
follows:
2.4.1 Authority. He has full power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
2.4.2 Binding Obligation. Assuming the due authorization,
execution and delivery of this Agreement by each of the other parties hereto,
this Agreement constitutes his binding obligation, enforceable against him in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors' rights generally.
2.4.3 No Conflict. The execution, delivery and performance of
this Agreement by him and the consummation by him of the transactions
contemplated hereby will not, with or without the giving of notice or the lapse
of time or both, (i) violate any provision of law, statute, rule or regulation
to which he is subject, (ii) violate any order, judgment or decree applicable to
him, or (iii) conflict with, or result in a breach or default under, any term or
condition of any material agreement or other material instrument to which he is
a party or by which he or his property is bound or affected.
2.5 Survival of Stock Subscription Agreements. Parent represents,
acknowledges and agrees that (i) the Stock Subscription Agreement dated
September 25, 1992 between GEI and Old Parent, (ii) the Stock Subscription
Agreements dated September 25, 1992 between each of Irell & Xxxxxxx, DLJ Capital
Corp. and Yucaipa Capital Fund, L.P., on the one hand, and GEI and Old Parent on
the other hand and (iii) the Management Subscription and Stockholders Agreements
dated October 15, 1992 between each of Xxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxxx and
Xxxxxxxxx X. Xxxxxx on the one hand, and GEI and Old Parent on the other hand
(collectively the "Stock
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Agreements") will be assumed by Parent in the Parent Merger. Each of the Stock
Agreements shall remain in full force and effect with respect to the Common
Stock as if such Selling Stockholders had entered into such Stock Agreements
directly with Parent, and after the Parent Merger and the Recapitalization, for
purposes of the "piggyback" registration rights provisions of such Stock
Agreements, the capital stock of the Parent that shall be subject to such
provisions shall be the Common Stock. In addition, Parent and GEI have agreed to
clarify and amend Section 4 of the Stock Agreement applicable to GEI to provide
that GEI and its Affiliates shall have two demand registration rights to cause
Parent to register shares of Common Stock (so long as the demand relates to at
least 10% of the outstanding Common Stock) and two demand registration rights to
cause Parent to register shares of Parent New Preferred (so long as the demand
relates to at least 30% of the outstanding Parent New Preferred (or notes issued
in exchange for such shares as permitted by the terms of the Preferred New
Preferred)) under the Securities Act of 1933, as amended, and applicable state
securities or blue sky laws in connection with a proposed sale or distribution
of such Common Stock or Preferred Stock (or the notes in exchange for such
shares), respectively. So long as the Common Stock or Parent New Preferred is
publicly traded, the respective demand registration may be a "shelf
registration" for such security that is publicly traded and Parent shall keep
such shelf registration effective for two years. The parties agree to enter into
a separate amendment agreement reflecting such registration rights of GEI for
the Common Stock and the Parent New Preferred, respectively.
2.6 Termination. This Agreement shall terminate on, and be of no further
force and effect after, the first to occur of the following: (i) January 31,
1998 or (ii) the date the parties are advised by the Initial Purchasers of the
Notes that it is not practical to effect the issuance and sale of the Notes.
ARTICLE 3
Miscellaneous
3.1 Purchase From PE. Parent and the Millers acknowledge that Xxxxxxx
Xxxxx & Partners, L.P. ("LGP") or an affiliate of LGP will purchase from PE for
cash, immediately after the consummation of the Recapitalization, the thirty
five thousand seventy (35,070) shares of Parent New Preferred, representing
three million five hundred seven thousand dollars ($3,507,000) of Liquidation
Value of the Parent New Preferred.
3.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given upon receipt if delivered personally or sent by facsimile
transmission (receipt of which is confirmed) or by courier service promising
overnight
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delivery (with delivery confirmed the next day) or three (3) business days after
sent by registered or certified mail (postage prepaid, return receipt
requested). Notices shall be addressed as follows:
To Parent: Big 5 Holdings Corp.
0000 Xxxx Xx Xxxxxxx Xxxxxxxxx
Xx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxxx, General
Counsel
Facsimile: (000) 000-0000
With a copy to: Irell & Xxxxxxx LLP
000 Xxxxx Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
To GEI: Green Equity Investors, L.P.
c/o Xxxxxxx Xxxxx & Partners, L.P.
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxxx Xxxxxx Xxxxxx
Facsimile: (000) 000-0000
To the Millers: Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
c/o Big 5 Holdings Corp.
0000 Xxxx Xx Xxxxxxx Xxxxxxxxx
Xx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Any party may from time to time change its address for the purpose of notices by
a similar notice specifying the new address but no such change shall be
effective as against any Person until such Person shall have actually received
it.
3.3 Specific Performance. The parties hereto agree that if any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof (without requirement to post bond), in addition to any and all other
remedies at law or in equity.
3.4 Amendment; Waiver. This Agreement may be amended, modified,
supplemented or terminated only by a written instrument signed by Parent and
each of GEI and the Millers.
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No provision of this Agreement may be waived orally, but only by a written
instrument signed by the party against whom enforcement of such waiver is
sought. No alteration, modification or impairment shall be implied by reason of
any previous waiver, extension of time, delay or omission in exercise, or other
indulgence.
3.5 Further Assurances. Each party hereto agrees to execute any and all
further documents and writings and to perform such other actions which may be or
become necessary or expedient to effectuate and carry out this Agreement.
3.6 No Third-Party Benefits. None of the provisions of this Agreement
(other than Section 2.5 with respect to the Selling Stockholders) shall be for
the benefit of, or enforceable by, any third-party beneficiary.
3.7 Interpretation. For all purposes of this Agreement, except as
otherwise expressly provided, all terms defined herein include the plural as
well as the singular and the words "include," "includes" and "including" shall
be deemed in each case to be followed by the words "without limitation."
3.8 Assignability. This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns.
3.9 Severability. If any provision hereof shall be held to be
unenforceable or invalid by any court of competent jurisdiction or as a result
of future legislative action, such holding or action shall be strictly construed
and shall not alter the enforceability, validity or effect of any other
provision hereof.
3.10 Entire Agreement. This Agreement and the agreement referenced in
Section 2.5 hereof contain the final and entire agreement among the parties with
respect to the matters contemplated hereby and supersede all written or verbal
representations, warranties, commitments and other understandings prior to the
date hereof. No reference shall be made to any draft of this Agreement for
purposes of interpretation or resolution of ambiguity or otherwise.
3.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
3.12 Attorney's Fees. In any suit or proceeding arising out of this
Agreement to interpret or enforce any provision of this Agreement, the
prevailing party shall be entitled to all reasonable out-of-pocket expenses and
reasonable attorneys' fees incurred by such party in connection with such suit
or proceeding.
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3.13 Captions. The descriptive headings herein are inserted for
convenience only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
3.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first set forth above.
[Signature Blocks Omitted]
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