EXHIBIT 4.1
SUBORDINATED CONVERTIBLE NOTE
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK TO WHICH THIS NOTE MAY BE
CONVERTED HAVE BEEN REGISTERED UNDER ANY SECURITIES LAWS IN RELIANCE OF
EXEMPTION(S) THEREFROM AND NEITHER SUCH SECURITIES MAY BE SOLD OR TRANSFERRED
UNLESS SUCH TRANSFER OR SALE IS MADE IN COMPLIANCE WITH ALL FEDERAL AND
APPLICABLE STATE SECURITIES LAWS. THIS NOTE IS SUBORDINATE TO CERTAIN
INDEBTEDNESS OF THE MAKER TO CERTAIN SECURED LENDERS AS DESCRIBED BELOW.
SUBORDINATED CONVERTIBLE NOTE
$1,000,000.00 May 10, 1996
FOR VALUE RECEIVED, ILD COMMUNICATIONS, INC., a Delaware corporation (the
"Maker"), promises to pay to INTELLICALL, INC., a Delaware corporation (together
with any assigns or successors to this Note, the "Holder") at its address set
forth in Article VII hereof, lawful money of the United States at the principal
sum of One Million Dollars and No Cents ($1,000,000.00), together with interest
thereon at a rate of ten percent (10%) in accordance with the terms and
conditions herein set forth. This Note is being delivered pursuant to the terms
of that certain Organization Agreement (the "Organization Agreement") dated May
10, 1996 to which the Maker and the Holder are parties.
ARTICLE I
PAYMENT OF INTEREST AND PRINCIPAL; PREPAYMENT
Section 1.1 PAYMENTS; INTEREST RATE. From the date hereof until this Note
is paid in full and canceled: (a) interest accrued on this Note at a fixed,
simple interest rate of ten percent (10%) for the quarterly period then ending
shall be payable in arrears on July 31, October 31, January 31 and April 30 of
each year commencing with an stub interest payment on July 31, 1996; and (b) the
entire principal amount, together with any and all accrued interest thereon,
shall be due and payable in full in one lump sum on May 10, 2001; provided,
however, that if any of such payment dates above is a day on which federally
chartered banking institutions in the United States are not open for business,
then on the first business day next succeeding such date on which such
institutions are open for business. Notwithstanding the foregoing or any other
provision of this Note, the Holder shall not be entitled to receive, collect or
apply as interest on the principal of this Note any amount in excess of the
maximum rate permitted under applicable law.
Section 1.2 PREPAYMENTS.
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Section 1.2.1 PREPAYMENTS AT OPTION OF HOLDER. Subject to the
additional provisions in Section 3.1 (b) hereof, if while this Note remains
outstanding, the Maker shall propose to either (i) sell all or any substantial
portion of its assets, rights and properties or merge or consolidate with any
other corporation, partnership, or other business entity such that it is not the
surviving entity, or (ii) file a registration statement under the Securities Act
of 1933 covering any of its debt or equity securities, then the Holder shall
have the option, exercisable by notice given prior to the effective date of such
sale, merger consolidation or registration statement, to cause the Maker to
prepay the entire outstanding amount of and interest on this Note out of the
proceeds of such sale or public offering.
Section 1.2.2 PREPAYMENTS AT OPTION OF MAKER. Subject to the
provisions of Article IV hereof, this Note may be prepaid prior to maturity, in
whole or part, at any time subsequent to two years from the date hereof, without
premium or penalty. Prepayments shall be applied first to payments of all
accrued or unpaid interest on the unpaid principal of this Note and then to
principal of this Note.
Section 1.3 TRANSFER OF NOTE. Except for transfers to an Affiliate (as
such term is defined in the Shareholders Agreement of even date herewith to
which the Maker and Holder are parties) or transfer by the Holder via collateral
assignment to such Holder's senior lender (or successors thereto), this Note, or
any interest herein, may not be offered, sold, transferred, pledged, assigned or
otherwise disposed of by the Holder without the prior written consent of Maker.
Any attempted offer, sale, transfer, pledge, assignment or other disposition not
in compliance with this Section 1.3 will be invalid.
Section 1.4 PARI PASSU WITH OTHER NOTE. This Note is one of three Notes
in the aggregate amount of $2,000,000 dated of even date herewith issued
pursuant to the terms of the Organization Agreement. The three Notes shall rank
PARI PASSU in right of payment with each other and all payments made with
respect to this and other Note shall be made proportionately to all holders of
such Notes.
ARTICLE II
REMEDIES
Section 2.1 EVENTS OF DEFAULT. Upon the occurrence of any Event of
Default (as defined below), the Holder may declare the entire unpaid principal
of this Note, and all unpaid interest thereon, to be immediately due and
payable, and the Holder of this Note may thereupon proceed to protect and
enforce its rights either by suit in equity or by other appropriate proceedings,
whether for specific performance (to the extent permitted by law) of any
covenant or agreement contained herein or in aid or
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exercise of any power granted herein, or proceed to enforce the payment of this
Note or to enforce any other legal or equitable right of the Holder. If an
Event of Default shall occur or exist and this Note is placed in the hands of an
attorney for collection or suit is filed herein, or proceedings are had in
bankruptcy or similar proceedings for the establishment or collection of any
amount called for hereunder, the Maker agrees to pay the Holder hereof
reasonable attorneys or collection fees actually incurred. For the purposes
hereof, an "Event of Default" shall exist if any of the following occurs and is
continuing for the periods indicated:
(a) the Maker fails to pay when due on any payment hereunder when and as
such payment shall become due and payable, and shall fail to cure such default
within three (3) days after notice to the Maker by the Holder of written demand
for such payment; or
(b) the Maker pursuant to the meaning of any Bankruptcy Law: (i)
commences a voluntary case; (ii) consents to an involuntary case, (iii) consents
to the appointment of a Custodian for it or for all or substantially all of its
property or (iv) makes a general assignment for the benefit of its creditors; or
(c) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Maker in an involuntary
case, (ii) appoints a Custodian for the Maker or for all or substantially all of
its property or (iii) orders the complete liquidation of the Maker in a
proceeding other than as described in clause (c), and the order or decree
remains unstayed and in effect for 60 consecutive days.
The term "Bankruptcy Law" means Title 11, U.S. Code or any other similar
Federal or state law for relief of creditors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
Section 2.2 REMEDIES NON-EXCLUSIVE. The remedies provided to the Holder
herein shall be cumulative and non-exclusive, and not in lieu of any other
rights or remedies to which the Holder is entitled at law or equity for any
breach of, or non-compliance with, the provisions of this Note by the Maker.
Section 2.3 NO LIMITATION ON SUITS ON NOTE. Nothing contained in this
Note shall affect or impair the obligation of the Maker, which is absolute and
unconditional, to pay the principal of and accrued interest on this Note to the
Holder when and as the same become due and payable pursuant to the terms of this
Note, or affect or impair the right of action, which is also absolute and
unconditional, of the Holder to institute suit against the Maker to enforce such
payment by reason of contract embodied in this Note.
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Section 2.4 WAIVER OF RIGHTS. Maker hereby waives demand, presentment for
payment, notice of nonpayment, protest, notice of protest, filing of suit and
diligence in collecting this Note.
ARTICLE III
CONVERSION
Section 3.1 CONVERSION PROVISIONS.
Section 3.1.1 UNFETTERED CONVERSION AT THE OPTION OF THE HOLDER.
Subject to and upon compliance with the provisions of this Section 3.1, and
subject to compliance with any required notification or expiration or
termination of any notice or waiting periods under applicable laws or
regulations (including, without limitation, the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended (the "HSR Act")), including any extensions
thereof, Holder shall have the right, at Holder's option, at any time (and from
time to time) to convert any principal balance of this Note, in whole or part,
into that number of the fully paid and nonassessable shares of the Maker's
Common Stock equal to the then-applicable Conversion Rate (as defined in Section
3.1.3. hereof), which shall be calculated as to each conversion to the nearest
1/100th of a share but any fractional shares shall receive cash in lieu of the
issuance of a fractional share.
Section 3.1.2. CONVERSION PROCEDURES.
(a) In order to exercise the conversion privilege pursuant to
Section 3.1 hereof, the holder of this Note shall deliver to the
Maker, during normal business hours at its principal place of business
or at such other place as may be designated by the Maker, the Note
duly endorsed or assigned in blank, accompanied by written notice: (A)
that the holder elects to convert the Note; and (B) specifying the
name or names (with address) in which a certificate or certificates
for shares of Common Stock are to be issued and, if so required by the
Maker, by a written instrument or instruments of transfer in form
reasonably satisfactory to counsel for the Maker, duly executed by the
holder or his or its duly authorized legal representative.
(b) As promptly as practicable after the surrender of the Note
pursuant to this Section 3.1.2 for conversion pursuant to Section
3.1.1. hereof, the Maker shall deliver to or upon the written order of
the Holder of this Note when the Note is surrendered, a certificate or
certificates representing the number of fully paid and nonassessable
shares of Common Stock into which this Note may be or have been
converted in accordance with the provisions of this Section 3.1
together with a new Note, if applicable, in the
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principal amount not converted in substantially the form as this Note.
The Maker shall pay all expenses, taxes (other than stock transfer
taxes) and other charges required to be paid by the Maker in order to
issue the shares of Common Stock pursuant to this Section 6.
(c) Conversion shall be deemed to have been effected on the date
on which all of the conditions specified in Section 3.1.2.(a) have
been satisfied (the "Conversion Date"), and the person or persons in
whose name or names any certificate(s) for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become
the holder or holders of record of the shares of Common Stock
represented by those certificates on and as of the Conversion Date,
and such conversion shall be at the Conversion Rate in effect on the
Conversion Date (unless the share transfer books of the Maker shall be
closed on the Conversion Date, in which case such person or persons
shall be deemed to have become the holder or holders of record at the
close of business on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the
Conversion Rate in effect on the Conversion Date). All shares of
Common Stock issued upon conversion of the this Note will, upon
delivery, be duly and validly issued, and fully paid and
nonassessable.
Section 3.1.3 CONVERSION RATE. The "Conversion Rate" shall be one
(1) share of Common Stock for each $90.00 of principal then due the Holder,
subject to adjustment from time to time as provided in Section 3.2. hereof.
Section 3.2. ANTI-DILUTION PROVISIONS AND ADJUSTMENT OF CONVERSION RATE.
Section 3.2.1. NO DILUTION. Subject to the provisions of Section
3.2.3. hereof, in the event the Maker shall, at any time or from time to
time while any principal balance of this Note is outstanding, (A) pay a
dividend or make a distribution in respect of Common Stock in shares of
Common Stock, or (B) subdivide or combine the outstanding shares of Common
Stock into a greater or lesser number of shares, in each case whether by
reclassification of shares, recapitalization of the Maker, or otherwise,
then in such event, the Note will automatically, without any action on the
part of the holder thereof or the Maker, become convertible into that
number of shares of Common Stock equal to the number of shares of Common
Stock into which this Note could be converted immediately prior to such
event, multiplied by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock outstanding
immediately before
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such event. An adjustment pursuant to this Section 3.2.1. shall be
effective upon payment of such dividend or distribution in respect of the
Common Stock, and in the case of a subdivision or combination, shall become
effective immediately as of the effective date thereof.
Section 3.2.2. PRICE PROTECTION. Subject to the exceptions in
Section 3.2.3. below, in the event the Maker shall at any time or from time
to time while any principal balance of this Note is outstanding, sell or
issue shares of Common Stock (other than in a transaction subject to
Section 3.2.1. hereof), any security convertible into shares of Common
Stock or any option, right or warrant to purchase shares of Common Stock,
for no consideration or at a purchase price per share of Common Stock (or
conversion rate, in the case of a security convertible into Common Stock)
less than the Conversion Rate in effect on the date of sale or issuance of
such Common Stock, security convertible into Common Stock, option, right or
warrant, then, in such event (or in the event or any change in the terms of
any security convertible into Common Stock or option, right or warrant that
has a similar effect on the date of such change), this Note will
automatically, without any action on the part of the holder hereof or the
Maker, become convertible into that number of shares of Common Stock equal
to the number of shares of Common Stock into which this Note could be
converted immediately before such sale or issuance of Common Stock,
securities convertible into Common Stock, options, rights or warrants (or
change in terms), multiplied by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately before such sale
or issuance of Common Stock, securities convertible into Common Stock,
options, rights or warrants (or change in terms) plus the maximum number of
shares of Common Stock that could be acquired upon the sale or issuance of
the Common Stock, or upon exercise in full of all such conversion rights,
options, rights and warrants, and the denominator of which is the number of
shares of Common Stock outstanding immediately before such sale or issuance
of Common Stock, securities convertible into Common Stock, options, rights
or warrants (or change in terms) plus the number of shares of Common Stock
that could be purchased at the Conversion Rate at the time of such sale or
issuance (or change in terms) for the maximum aggregate consideration
payable upon the sale or issuance of the Common Stock, or upon exercise in
full of all such conversion rights, options, rights or warrants. For
purposes of this Section 3.2.2., all shares of Common Stock issuable upon
the conversion of such convertible securities or upon exercise of such
options, rights or warrants shall be deemed to have been issued for the
purpose of computing the number of shares of Common Stock into which this
Note could be converted, as of the time such convertible securities,
options, rights or warrants are issued of sold (or the terms thereof are
changed). If any rights of conversion or
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exercise of such convertible securities, options, rights or warrants shall
expire without having been exercised (except in the case where the Maker
has redeemed such convertible security, option, right or warrant or made
any payment on account of the holder thereof not converting or exercising
such convertible security, option, right or warrant), the number of shares
of Common Stock into which this Note could be converted shall forthwith be
automatically adjusted to be the number of shares of Common Stock into
which this Note could be converted that would have been in effect had an
adjustment been made on the basis that the only shares of Common Stock
issued or sold were those actually issued upon the conversion or exercise
of such convertible securities, options, rights or warrants. For purposes
hereof, the date of issuance of options for shares of Common Stock shall
mean the date of their grant.
Section 3.2.3. EXCEPTIONS. Notwithstanding any other provisions
herein to the contrary, the following events shall not be deemed to
constitute an issuance of Common Stock or other security of the Maker for
purposes of this Article 3: (A) the issuance of any options for shares of
Common Stock, or the issuance of shares of Common Stock upon exercise
thereof, pursuant to a stock option plan for directors, officers, key
employees or consultants of the Maker, as approved by the Board of
Directors (or committee thereof) of the Maker, including the options to
Xxxxxxx X. Xxxxx and certain key employees or consultants of the Maker for
27,500 shares at $24.20 per share to be approved by the Board; (B) the
issuance of any warrants, options or rights, or the issuance of shares of
Common Stock upon exercise thereof, as part of the terms of any borrowings,
direct or indirect, from financial institutions or other Persons (including
the warrants to be granted to Sirrom Capital Corporation and Xxxxx River
Ventures, L.P. in connection with a $2,000,000 loan) as approved by the
Board of Directors of the Company,; or (C) the issuance of the warrants by
the Company to Triad Capital Partners, Inc., or affiliates thereof, to
purchase up to 6,000 shares of Common Stock at $90.00 per share, and the
issuance of shares of Common Stock pursuant to the exercise of any such
warrant.
Section 3.2.4. EQUITABLE ADJUSTMENT. If the Maker shall make any
dividend or distribution on shares of Common Stock, sell or issue any
Common Stock, other capital stock or other security of the Maker or sell or
issue any rights or warrants to purchase or acquire any such security that
is not expressly addressed by the terms of this Article 3, and does not
result in an adjustment to the number of shares of Common Stock into which
this Note can be converted pursuant to this Section 6(d), the Board of
Directors of the Maker may, in its sole discretion, consider whether such
dividend, distribution, sale or issuance is of a nature that some type of
equitable adjustment should be made in respect of such dividend,
distribution, sale or issuance for the protection
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of the holders of the Notes. If in such case the Board of Directors
determines that some type of adjustment should be made, an equitable
adjustment not repugnant to applicable law and for the protection of the
holders of Notes shall be made effective as of the date of such dividend,
distribution, sale or issuance, as determined in good faith by the Board of
Directors in its sole discretion. The determination of the Board of
Directors as to whether some type of adjustment should be made pursuant to
the provision of this Section 3.2.4., and if so, as to what adjustment
should be made and when, shall be final and binding on the Maker and all
stockholders of the Maker. The Maker shall be entitled to make such
additional adjustments, in addition to those required by the provisions of
this Section 3.2.4., as shall be necessary so that any dividend or
distribution in shares of capital stock of the Maker shall not be taxable
to holders of Common Stock.
Section 3.3 TERMINATION OF RIGHT TO CONVERT IN CONNECTION WITH FUNDAMENTAL
CORPORATE CHANGES. Notwithstanding anything herein the contrary, and subject to
the notice requirements of this Section 3.3, if the Maker shall be a party to
any transaction that involves any consolidation, merger or share exchange of the
Maker with or into another Maker, or any sale of all or substantially all of the
assets of the Maker to another Person, and which is effected in such a way that
the holders of Common Stock shall be entitled to receive cash, stock, securities
or other assets with respect to or in exchange for Common Stock, then the right
to convert this Note shall terminate at the close of business on the date as of
which the holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for cash, securities or other assets deliverable upon
such consolidation, merger, share exchange or sale of all or substantially all
of the assets of the Maker. In case the Maker shall enter into any agreement or
understanding or the Board of Directors shall adopt any resolution authorizing
or proposing any transaction of the type described in this Section 3.3., then in
any such event the Maker promptly shall cause to be mailed, by registered or
certified mail, postage prepaid, to the holders of the Notes, at each such
holder's last address appearing on the records of the Maker, thirty (30) days
prior to the date on which the Maker closes its books or takes a record for
determining rights to vote with respect to any consolidation, merger, share
exchange or sale, a notice of such agreement, understanding or resolution
stating the expected record date for determining holders of Common Stock
entitled to exchange their shares with respect to a transaction described in
this Section 3.3.; PROVIDED, HOWEVER, that the Maker shall not be liable or
responsible if the actual dates of any such events shall be different for the
expected dates set forth in such notice.
3.4. SUFFICIENT AUTHORIZED SHARES OF COMMON STOCK. The Maker shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the Notes, such
number of shares of
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Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding Notes. The Maker shall, from time to time, subject to
and in accordance with applicable law, increase the authorized shares of Common
Stock if at any time the number of authorized shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion at such time of all
then outstanding Notes.
ARTICLE IV
SUBORDINATION
Section 4.1 AGREEMENT TO SUBORDINATE TO SENIOR DEBT. The Maker covenants
and agrees, and the Holder, by accepting this Note, covenants and agrees for
itself and its successors and assigns, that the indebtedness evidenced by this
Note shall be subordinate in right of payment to all Senior Debt (as defined
herein). As used in this Note, the term "Senior Debt" shall mean the principal
of and interest on the Maker's $2,000,000 indebtedness to Sirrom Capital
Corporation and Xxxxx River Ventures, L.P., as may exist from time to time (as
the same may be deferred, renewed, extended or refinanced) and any other secured
lending facilities of Maker hereinafter in effect from time to time while this
Note is outstanding; provided, however, that nothing herein shall be construed
to impair or restrict the payment of interest hereunder so long as the there
shall be no defaults under the terms of the Senior Debt.
ARTICLE V
LOST NOTE
Section 5.1 LOST NOTE. On receipt of evidence reasonably satisfactory to
the Maker of the loss, theft, destruction or mutilation of this Note, the Maker
will execute and deliver, in lieu of this Note, a new note of like tenor.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 THE MAKER'S REPRESENTATIONS AND WARRANTIES. The Maker
represents and warrants to the Holder as follows:
(a) The Maker is a corporation, duly organized, validly existing and
in good standing under the laws of the State of Delaware with the requisite
corporate power and authority to execute and deliver this Note and perform its
obligations hereunder;
(b) The execution and delivery by the Maker of this Note and the
performance of its obligations hereunder has been
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duly authorized by all necessary corporate action and this Note constitutes a
valid and binding obligation of the Maker, enforceable in accordance with its
terms except (i) as the enforceability hereof may be limited by applicable
bankruptcy or other laws affecting the enforcement of creditors' rights
generally and (ii) as to equitable remedies, to the equitable discretion of the
courts; and
(c) The execution and delivery of this Note by the Maker and the
performance by the Maker of its obligations hereunder will not result in a
breach of any of the terms of, or constitute a default under, the Maker's
Certificate of Incorporation, or its By-laws or any indenture, mortgage, note or
other instrument or agreement of which the Maker is, as of the date hereof, a
party or by which the Maker is bound, or any order of any Governmental Entity
entered in any proceeding to which the Maker was or is, as of the date hereof, a
party or by which it is bound.
ARTICLE VII
NOTICES
Section 7.1 NOTICES. In any case where any notice or other communication
is required or permitted to be given hereunder, such notice or communication
shall be in writing and (i) personally delivered, (ii) sent by postage prepaid
registered airmail, or (iii) transmitted by telecopy as follows:
If to the Maker:
ILD Communications, Inc.
13000 Sawgrass Xxxxxxx Xxxxxx
Xxxxx 0
Xxxxx Xxxxx Xxxxx, Xxxxxxx 00000
Telecopy: (000) 000-0000
If to Holder:
INTELLICALL, INC.
0000 Xxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
Attention: Chief Financial Officer
Telecopy: (000) 000-0000
All such notices or other communications shall be deemed to have been given or
received (i) upon receipt if personally delivered, (ii) on the third business
day following posting if by postage prepaid registered airmail, and (iii) when
sent with evidence of transmission if by telecopy.
Section 7.3 SUCCESSORS. All covenants, stipulations, promises and
agreements contained in this Note, by or on behalf
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of the Maker or the Holder, shall be binding upon and inure to the benefit of
their respective successors, assigns, heirs and personal representatives.
Section 7.4 HEADINGS; CONSTRUCTIONS. The article and sectional headings
herein are for convenience of reference only and shall not affect the meaning or
construction of the terms hereof. Whenever the context so requires, the
masculine gender herein shall include the feminine or neuter, and the singular
number shall include the plural. If any of the provisions of this Note shall be
unlawful, void or for any reason unenforceable, they shall be deemed separable
from, and shall in no way affect the validity or enforceability of, the
remaining provisions of this Note.
Section 7.6 GOVERNING LAW. This Note shall be governed by and construed
in accordance with the laws of the State of Delaware.
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IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed as
of the day and year first above written.
MAKER:
ILD COMMUNICATIONS, INC.
By:/s/ Xxxxxxx X. Xxxxx
--------------------------------
Xxxxxxx X. Xxxxx, President
and CEO
Accepted, Acknowledged and
Agreed to:
/s/ Secretary
--------------------------
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