EMPLOYMENT AGREEMENT
This agreement ("Agreement") made as of the 4th day of September, 1996
between Micro Warehouse, Inc., a Delaware corporation (hereinafter referred to
as the "Employer" or the "Company"), with its principal place of business at 000
Xxxxxxxxxxx Xxxxxx, Xxxxxxx, Xxxxxxxxxxx 00000, and Xxxxxxx X. Xxxx, Xx. whose
address is 0000 Xxxxxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000 (hereinafter referred
to as "Employee").
WHEREAS, the parties hereto entered into a consulting arrangement on or
about August 1, 1996 and, for good and valuable consideration, they are now
terminating the same and entering into this Employment Agreement which shall
represent the entire agreement between the parties with respect to the subject
matter herein.
1. EMPLOYMENT. The Company hereby employs Employee, and Employee agrees
to serve the Company, commencing as of October 14, 1996, on the terms and
conditions set forth below.
2. DUTIES. During the Period of Employment (as hereinafter defined), the
Company shall employ Employee as President and Chief Executive Officer. The
Employee shall be responsible for the general supervision, direction and control
of the business and affairs of the Company and shall work in cooperation with
the Chairman and Board of Directors to perform such duties as are consistent
with those of President and Chief Executive Officer. The precise
responsibilities of Employee may be revised from time to time provided the same
do not materially
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affect Employee's executive position. In furtherance of the foregoing, Employee
hereby agrees to perform his duties faithfully. During the Period of Employment
and except for vacations in accordance herewith and absences due to temporary
illness, Employee shall devote all of his available business time and energies
during normal business hours to the business of the Company. Subject to the
reasonable review and concurrence of the Board of Directors, the Employee shall
be permitted to participate as a board member of other publicly traded and
privately held companies provided said participation does not interfere with the
discharge of the Employee's duties or obligations hereunder.
3. TERM. The Company shall retain Employee and Employee shall accept
employment by the Company for a term commencing October 14, 1996 and ending
December 31, 2000 (the "Period of Employment"). At least one (1) year prior to
the expiration of the Period of Employment, each party will inform the other of
its or his intentions with respect to extending the term beyond the Period of
Employment; it being understood, however, that neither party shall be obligated
beyond the Period of Employment unless by mutual agreement. If the parties
mutually agree to extend the Period of Employment after any initial mutually
agreed extended period it shall continue thereafter to be renewed automatically
for additional one-year terms unless one or the other chooses not to renew. In
such successive one-year terms, each party shall inform the other of its
intentions with respect to any possible further renewal at least 90 days prior
to the expiration of the same.
4. COMPENSATION.
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(A) BASE SALARY. For all services rendered by the Employee under this
Agreement, the Company shall pay to him a minimum "Base Salary" at the rate of
Five Hundred Thirteen Thousand Nine Hundred and 00/100 ($513,900.00) Dollars per
annum during the Period of Employment payable in at least equal monthly
installments. The term "Base Salary" shall mean regular cash compensation paid
on a periodic basis exclusive of benefits, bonuses or incentive payments. The
Base Salary for the year commencing January 1, 1997 shall be increased by any
cost of living increase reported by the U.S. Department of Labor for the year
January 1, 1996 through December 31, 1996. Effective December, 1997, the Base
Salary shall be subject to an annual review with the proviso that the Company
may not reduce the same but shall not be obligated to increase the same except
in its discretion.
(B) BONUS. On or about February 1, 1997, the Company shall pay the
Employee a bonus in the amount of Eighty Thousand Three Hundred Dollars
($80,300.00).
(C) ANNUAL INCENTIVE COMPENSATION. In addition to Base Salary, the
Employee shall be eligible to receive annual incentive compensation ("Incentive
Compensation") as set forth below, which amount of Incentive Compensation shall
not exceed One Hundred Fifty Percent (150%) of Base Salary in any one year.
(i) Prior to January 1 of each year that this Agreement remains in
effect, the Board of Directors and the Employee shall mutually agree upon and
establish a plan (the "Incentive Plan") describing anticipated results of
operations for the coming fiscal year which Incentive Plan shall contain
financial goals (hereinafter "Targets") and other goals (hereinafter
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"Other Goals"). The Incentive Plan shall be determined in the sole discretion
of the Board and the Employee and may vary from year to year. The Incentive
Plan shall be memorialized and a copy of the same shall be provided to the
Company's Certified Public Accountants (CPAs). Subsequent to the conclusion of
the year the CPAs shall compare the actual results of operations for said year
to the Incentive Plan.
The Incentive Plan shall set forth a target bonus amount, One Hundred
Percent (100%) of which shall be payable for accomplishing One Hundred Percent
(100%) of Targets and Other Goals which amount shall be Seventy-Five Percent
(75%) of Base Salary (hereinafter "Target Bonus Amount") for the year ending
December 31, 1997. The Board of Directors can modify upward the Target Bonus
Amount as part of the salary review process for years subsequent to 1997. The
actual amount, if any, of Incentive Compensation to which the Employee may be
entitled shall range on a linear basis from Fifty Percent (50%) of Target Bonus
Amount if Eighty Percent (80%) of Targets are achieved to a maximum of One
Hundred Fifty Percent (150%) of Target Bonus Amount if One Hundred Twenty
Percent (120%) of Targets are achieved. Sixty Percent (60%) of Incentive
Compensation as determined shall be automatically due and payable to the
Employee based on the level of accomplishment of Targets and the remaining Forty
Percent (40%) shall be payable as determined by the Board of Directors based
upon the accomplishment of Other Goals. No Incentive Compensation shall be paid
if less than Eighty Percent (80%) of Targets are achieved.
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By way of example, if Base Salary is Five Hundred Thirteen Thousand Nine
Hundred Dollars ($513,900.00), One Hundred Percent (100%) of Target Bonus Amount
at accomplishment of One Hundred Percent (100%) of Targets and Other Goals shall
be Three Hundred Eighty-Five Thousand Four Hundred Twenty-Five Dollars
($385,425.00). If the Company achieves Eighty Percent (80%) of Targets, Target
Bonus Amount shall be One Hundred Ninety-Two Thousand Seven Hundred Twelve and
50/100 Dollars ($192,712.50) (i.e., .5 x $385,425.00) and One Hundred Fifteen
Thousand Six Hundred Twenty-Seven and 50/100 Dollars ($115,627.50) (i.e., .6 x
$192,712.50) shall be automatically due and payable to the Employee with up to
the full balance of Seventy-Seven Thousand Eighty-Five Dollars ($77,085.00)
(i.e., .4 x $192,712.50) payable upon the achievement of Other Goals.
By way of further example: If Base Salary is Five Hundred Thirteen
Thousand Nine Hundred Dollars ($513,900.00), One Hundred Percent (100%) of
Target Bonus Amount at accomplishment of One Hundred Percent (100%) of Targets
and Other Goals shall be Three Hundred Eighty-Five Thousand Four Hundred Twenty-
Five Dollars ($385,425.00). Further, if the Company achieves One Hundred Ten
Percent (110%) of Targets, Target Bonus Amount shall be Four Hundred Eighty-One
Thousand Seven Hundred Eighty-One and 25/100 Dollars ($481,781.25) (i.e., 1.25 x
$385,425.00) and Two Hundred Eighty-Nine Thousand Sixty-Eight and 75/100 Dollars
($289,068.75) (i.e., .6 x $482,781.25) shall be automatically due and payable to
the Employee with up to the full balance of One Hundred Ninety-Two Thousand
Seven
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Hundred Twelve and 50/100 ($192,712.50) (i.e., .4 x $481,781.25) payable upon
the achievement of Other Goals.
(ii) Incentive Compensation shall be paid to Employee as soon as
practicable after the CPAs determine the amounts, if any, which are due the
Employee.
(D) SPECIAL INCENTIVE COMPENSATION. Prior to December 31, 1997 the
Company and Employee shall mutually establish and agree upon a Special Incentive
Compensation Program specifically defining performance targets and criteria for
the year commencing January 1, 1998. The Target Bonus Amount for this Special
Incentive Compensation program shall be Twenty-Five Percent (25%) of the Stock
Purchase Loan amount described in paragraph 5 hereinbelow. If the Company
achieves mutually established and agreed goals in calendar 1998, the payment of
Stock Incentive Compensation pursuant to this paragraph otherwise due the
Employee shall, to the extent of the same, be credited to forgive the principal
balance due on the fifth anniversary date of this Agreement.
(E) INCENTIVE STOCK OPTIONS.
(i) Upon execution of this Agreement the Company shall grant to the
Employee options to purchase Five Hundred Thousand (500,000) common shares at an
exercise price of Twenty-Five Dollars ($25.00) per share at least Four Thousand
(4,000) of which shall be "qualified" stock options. Said options shall vest at
the rate of Twenty-Five Percent (25%) per year commencing October 14, 1997.
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(ii) As an incentive and inducement to the Employee to remain in the
employ of the Company and devote his best efforts to the affairs of the Company,
the Employee shall receive at the end of each year an option to purchase a
minimum of 40,000 and a maximum of 50,000 shares of common stock of the Company,
the exact number, terms and option price of which shall be determined yearly by
the Stock Option Committee of the Board of Directors. The options set forth
herein shall be granted to the Employee pursuant to the Company's 1994 Stock
Option Plan and the Employee shall be subject to the terms and conditions set
forth therein.
5. STOCK PURCHASE LOAN. Upon execution of this Agreement the Company
shall cause to be loaned to the Employee that amount sufficient to permit the
Employee to acquire Fifty Thousand (50,000) of the Company's common shares from
the Company. The loan shall be secured by a pledge of said shares and shall be
repayable, if not sooner, five (5) years from the date hereof (subject to the
further conditions of this paragraph). Interest only at the annual rate of
6.73% shall be due semi-annually. Provided the Employee is in the employ of the
Company at the anniversary dates indicated, the Company shall forgive Twenty-
Five Percent (25%) of the principal balance due on each of the second, third,
fourth and fifth anniversary dates of this Agreement. In the event that the
Employee re-pays any portion of said loan (other than by loan forgiveness
pursuant to this Agreement) the Company shall pay to the Employee additional
compensation in the amount of any such re-payment on each anniversary date when
loan forgiveness would otherwise have occurred. If the employment relationship
has terminated the
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principal balance still due and any accrued interest thereon shall be payable
within ninety (90) days of the date of said termination.
6. BUSINESS EXPENSES. During the Period of Employment, the Company
agrees to reimburse Employee for reasonable and necessary expenses incurred by
him in connection with the performance of his duties hereunder. Employee shall
submit vouchers, invoices and such other documentation in accordance with the
Company's general policy with respect thereto.
7. BENEFITS. During the Period of Employment, the Company will provide
or, as necessary, reimburse Employee with or for the following benefits:
(A) ORDINARY INSURANCE. Medical, dental and hospitalization insurance and
short-term disability coverage for himself and his dependents, to the extent
provided generally to the senior employees of the Company.
(B) LIFE AND PERMANENT DISABILITY INSURANCE.
(i) Term life insurance in the principal face amount of One Million
Dollars ($1,000,000) insuring the life of the Employee. In this connection the
Employee is not aware of any circumstances which might require that the same be
obtained at other than standard rates.
(ii) Permanent disability insurance in the amount of One Million
Dollars ($1,000,000.00) insuring the Employee, the benefits of which shall be
payable to the Employee as and when received.
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(C) VACATIONS. Employee shall be entitled to four (4) weeks paid vacation
per year, the scheduling of which shall be in accordance with the general
policies and practices of the Company with respect thereto.
8. DEATH OR PERMANENT DISABILITY. In the event of the death or Permanent
Disability ("Permanent Disability" being defined as an illness which will
prevent the Employee from performing his duties for a period of six consecutive
months or nine out of any consecutive twelve months) prior to the expiration of
the Period of Employment, his employment shall be deemed to cease as of the end
of the month of the date of his death or Permanent Disability and this Agreement
shall terminate forthwith and all rights under it shall expire, except that
Employee or Employee's estate shall be entitled to receive Base Salary for a
period of six (6) months from the date of death or Permanent Disability plus the
pro rata amount of Incentive Compensation which would have been due the Employee
pursuant to paragraph 4(C) hereinabove for the period January 1 of said year
through the date of death or Permanent Disability. Said Base Salary shall be
paid at the time it would regularly be paid. Said Incentive Compensation shall
be paid as soon as practicable after a determination of the amount due is made
by the Company's CPAs.
Additionally, any options eligible to vest within twelve months of the date
of death or Permanent Disability shall be deemed accelerated and fully vested as
of the date of death or Permanent Disability subject to the further terms and
conditions of the Stock Option Plan pursuant to which the same were granted.
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9. CONFIDENTIAL INFORMATION. Employee acknowledges that the Company
would be damaged if Employee's knowledge with respect to the business of the
Company were disclosed to or utilized by parties other than the Company.
Accordingly, Employee covenants and agrees that he will not disclose any
presently known or hereafter acquired confidential or proprietary information of
the Company or its business to any person, firm, corporation or other entity.
For the purposes of this paragraph, the term "confidential or proprietary
information" shall mean all information which is currently known to or hereafter
acquired by Employee and relates to such matters as customer mailing lists,
pricing and credit techniques, marketing techniques, research and development
activities, sources of product, lists of magazines or other publications
containing advertising of the Company and other confidential or restricted
information which is not in the public domain. Confidential or proprietary
information shall not be deemed to include information released generally to the
public by the Company or others, information required by law to be disclosed or
information learned by the Employee from third parties without restrictions on
disclosure provided the same would not, if released, damage the Company. The
provisions of this paragraph shall survive the termination of this Agreement.
10. COVENANT NOT TO COMPETE.
(A) The Employee hereby covenants and agrees that from the date hereof
until eighteen (18) months after the termination of the Period of Employment or
the actual date of termination in the event of early termination in the event
this Agreement is renewed (the "Non-Compete Period") for the consideration set
forth in paragraph 10(B) hereinbelow, he shall not, directly or
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indirectly, own, operate, manage, join, control, participate in the ownership,
management, operation or control of, or be paid or employed by, or acquire any
securities of, or otherwise become associated with or provide assistance to, as
an employee, consultant, director, officer, shareholder, partner, agent,
associate, principal, representative or in any other capacity, any business
entity or activity which is directly or indirectly a "Competitive Business" (as
hereinafter defined); provided, however, that the foregoing shall not prevent
the Employee from (a) performing services for a Competitive Business if such
Competitive Business is also engaged in other lines of business and if the
Employee's services are restricted to employment in such other lines of
business; or (b) acquiring the securities of or an interest in any Competitive
Business, provided such ownership of securities or interests represents at the
time of such acquisition, but including any previously held ownership interests,
less than two percent (2%) of any class or type of securities of, or interest
in, such Business. The term "Competitive Business" shall mean and include any
business or activity that is substantially the same as any business or activity
then conducted by the Company, regardless of where such Competitive Business is
located.
(B) The Employee's Covenant Not to Compete shall be in consideration for
the Company's payment to the Employee of 1.375 times the Employee's Base Salary
in effect on the day prior to the commencement of the Non-Compete Period for
said 18 month period which shall be payable in at least equal monthly
installments at said rate.
(C) In the event that the Company commences any business and an effect of
the Company's engaging in such business would be that Employee would then be in
breach of
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covenant not to compete under the Agreement dated June 1, 1996 with Xxxxxx
Industries and Xxxxxx Micro, Inc., Employee shall have the right to terminate
this Agreement for cause pursuant to Paragraph 12(D)(ii) hereinbelow.
11. COVENANT NOT TO SOLICIT. Unless the Employee has obtained the prior
written consent of the Company, he hereby covenants and agrees that, from the
date hereof until the expiration of the Non-Compete Period, he shall not, for or
on behalf of a Competitive Business, directly or indirectly, as owner, officer,
director, stockholder, partner, associate, consultant, manager, advisor,
representative, employee, agent creditor or otherwise, attempt to solicit or in
any other way disturb or service any person, firm or corporation that has been a
customer account of the Company at any time or times prior to the termination of
the Period of Employment, whether or not he at any time had any direct or
indirect account responsibility for, or contact with, such customer account.
12. TERMINATION. In addition to termination for death or Permanent
Disability pursuant to paragraph 8, the employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
(A) TERMINATION UPON PRIOR NOTICE. The Company may terminate this
Agreement by giving the Employee ninety (90) days prior written notice.
(B) EMPLOYEE TERMINATION FOR CAUSE. At the election of the Company, it
may immediately upon written notice by the Company to the Employee terminate the
Employee for cause. For the purposes of this paragraph, cause for termination
shall be deemed to exist upon (i)
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a good faith finding by the Company of a willful failure or refusal of the
Employee to perform assigned duties for the Company of which he has knowledge,
or the commission of any other willful or grossly negligent action with the
intent to injure the Company; (ii) any material breach of any material provision
of this Agreement by the Employee if the Employee fails to correct such breach
(or to take substantial steps to correct such breach) within ten (10) days after
receiving written notice thereof; or (iii) the conviction of the Employee of, or
the entry of a plea of guilty or nolo contendere by the Employee to, a crime
involving an act of fraud or embezzlement against the Company or the conviction
of the Employee of, or the entry of a plea of guilty or nolo contendere by the
Employee to, any felony involving moral turpitude. Notwithstanding the
foregoing, the Company shall not terminate the Employee for cause pursuant to
this paragraph unless and until there shall have been delivered to the Employee
a copy of a resolution, duly adopted by the affirmative vote of the Board of
Directors at a meeting called and held after reasonable notice to the Employee
and an opportunity for the Employee, together with his counsel, to be heard
before the Board of Directors, finding that in the good faith opinion of the
Board of Directors the Employee is guilty of conduct set forth in subparagraphs
(i) and (ii) of this paragraph and specifying the particulars thereof in
reasonable detail.
(C) EMPLOYEE'S ELECTION FOR CAUSE. At the election of the Employee, he
may terminate his employment for cause immediately upon written notice by
Employee to the Company. For purposes of this paragraph, cause for termination
shall be deemed to exist upon (i) a material failure by the Company to continue
the Employee's participation in any bonus, compensation or
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other benefit plan in which the Employee is entitled to participate pursuant
hereto or the taking by the Company of any action which would directly or
indirectly materially reduce his participation therein; or (ii) a material
breach of any provision of this Agreement by the Company, or any breach of any
provision of this Agreement by the Company, whether or not material, if such
breach is not corrected (or substantial steps have not been taken to correct
such breach) within thirty (30) days after the Board received written notice
thereof.
(D) EFFECT OF TERMINATION.
(i) TERMINATION BY THE COMPANY FOR CAUSE. In the event the
Employee's employment is terminated for cause pursuant to paragraph 12(B)(i) or
(ii), the Company shall pay to the Employee the Base Salary and Incentive
Compensation due, if any, under paragraph 4, on a pro rata basis to the date of
termination at the time such Base Salary and Incentive Compensation would
regularly be paid and benefits otherwise payable to him hereunder all through
the last day of his actual employment by the Company.
(ii) TERMINATION AT THE ELECTION OF THE COMPANY WITHOUT CAUSE OR AT
THE ELECTION OF THE EMPLOYEE FOR CAUSE. In the event that the Employee's
employment is terminated without cause by the Company pursuant to paragraph
12(A) or with cause by the Employee pursuant to paragraph 12(C), then, following
the occurrence of such event, the Company shall pay to the Employee the
Incentive Compensation due, if any, under paragraph 4 hereof, on a pro rata
basis to the date of termination and shall continue to pay to Employee 1.375
times his Base Salary in effect on the day prior to termination for the 18
months subsequent to said termination in at least
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equal monthly installments at said rate. During said period, the Employee shall
continue to be bound by his Covenant Not to Compete.
13. BUSINESS COMBINATION. For purposes of this paragraph, a "Business
Combination" shall mean the merger or consolidation of the Company with, the
sale of all or substantially all the assets of the Company to any person or
entity not affiliated with the Company as of the date of this Agreement. If,
during the term of this Agreement, there shall occur, with or without the
consent of the Company, a Business Combination Employee shall have the option to
terminate this Agreement pursuant to paragraph 12(D)(ii) hereinabove on thirty
(30) days notice provided that the surviving entity in a merger or consolidation
may require the Employee to continue discharging his responsibilities during a
transition period subsequent to the consummation of the merger or consolidation.
Additionally, all of the Employee's unvested stock options shall be immediately
accelerated and become fully vested.
14. NOTICES. All notices, elections, demands or other communications
required or permitted to be made or given pursuant to this Agreement shall be in
writing and shall be considered properly given or made if sent by Telecopier,
Telex, courier service or certified mail, return receipt requested and addressed
to the parties at the respective addresses specified below. Either party may
change its address by giving notice in writing pursuant to this paragraph to the
other of its new address.
To the Company: Mr. Xxxxx Xxxxxxx
Micro Warehouse, Inc.
000 Xxxxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
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To Employee: Xx. Xxxxxxx X. Xxxx, Xx.
0000 Xxxxxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxxx 00000
15. ARBITRATION. Any controversy, claim or breach (except those relating
to monetary damages) arising out of or relating to this Agreement shall be
submitted for settlement to an arbitrator agreed upon by the parties. The
decision of such arbitrator shall be final and binding on the parties. If the
parties cannot agree upon an arbitrator, the controversy, claim or breach shall
be referred to the American Arbitration Association with a request that an
arbitrator be appointed pursuant to the rules of said Association. Such
arbitration shall be held in New Haven, Connecticut, in accordance with the
rules and practices of the American Arbitration Association pertaining to
single-party arbitration then in effect, and the judgement upon the award
rendered shall be entered by consent in any court having jurisdiction thereof.
16. ENTIRE AGREEMENT. This Agreement constitutes the full and complete
understanding and agreement of the parties. Neither party has relied upon any
representation of the other not set forth herein. This Agreement may not be
changed orally but only by an agreement in writing, signed by the party against
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
17. BINDING EFFECT. This Agreement shall be binding upon and accrue to
the benefit of the parties hereto, their heirs, executors, administrators and
successors.
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18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut without regard to its
principles with respect to conflicts of law.
19. COUNSEL FEES. Except as set forth herein the parties hereto shall
bear their own fees, costs and expenses incurred in connection with this
Agreement. If either party is required to bring suit or otherwise seek
enforcement of its or his rights in connection with the same, the prevailing
party in such action or proceeding shall be entitled to recover counsel fees
incurred in such action or proceeding. The Employee shall be reimbursed in an
amount not to exceed Two Thousand Dollars ($2,000.00) for legal fees and costs
incurred in connection with the review of this Agreement by his own counsel.
IN WITNESS WHEREOF, the parties hereto have affixed their signatures on the
day and year first above written.
EMPLOYER:
MICRO WAREHOUSE, INC.
By: /Xxxxx Xxxxxxx/
--------------------------------
Xxxxx Xxxxxxx
EMPLOYEE:
/Xxxxxxx X. Xxxx, Xx./
-------------------------------------
Xxxxxxx X. Xxxx, Xx.
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