EXHIBIT 10.1
FORM OF AGREEMENT
AGREEMENT
This Agreement dated as of May 27, 1997 by and between CUC
International Inc., a Delaware corporation (the "Company"), and E. Xxxx
Xxxxxxx ("Executive").
WHEREAS, the Executive and the Company are parties to a certain
Agreement dated as of May 15, 1996 (the "Existing Agreement"); and
WHEREAS, subject to the consummation of the transactions contemplated
by the Agreement and Plan of Merger between the Company and HFS Incorporated,
a Delaware corporation (the "Merger Partner") dated as of May 27, 1997 (the
"Merger Agreement"), whereby the Merger Partner will be merged with and into
the Company with the Company being the surviving corporation (the "Merger"),
the Company and the Executive wish to make arrangements for the Executive's
employment by the Company from and after the Merger;
WHEREAS, to implement those arrangements, the Executive and the
Company wish to make certain further amendments to the Existing Agreement and
to restate the Existing Agreement as so amended in its entirety herein for
ease of reference, subject to and effective as of and upon the consummation of
the Merger.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
SECTION I
EMPLOYMENT
Subject to the consummation of the Merger, the Company agrees to
employ the Executive and the Executive agrees to remain employed by the
Company for the Period of Employment as provided in Section III A. below and
upon the terms and conditions provided in this Agreement.
SECTION II
POSITION AND RESPONSIBILITIES
During the Period of Employment, the Executive agrees to serve as
Senior Executive Vice President of the Company and President and Chief
Executive Officer of the CUC division of the Company (regardless of the name
by which such division is
designated), which division is anticipated to include without limitation those
operations conducted by the significant subsidiaries of the Company
immediately before the Merger, and shall report directly to the Chief
Executive Officer of the Company. During the Period of Employment, the
Executive shall serve as a member of the Board of Directors of the Company for
the period for which he is and shall from time to time be elected.
SECTION III
TERMS AND DUTIES
A. PERIOD OF EMPLOYMENT
The period of the Executive's employment under this
Agreement (the "Period of Employment") will begin on the Closing Date (as
defined in the Merger Agreement) and end on the fifth anniversary thereof,
subject to extension or termination as provided in this Agreement. On the
first anniversary of the Closing Date, and on each subsequent anniversary
thereof, the Period of Employment will be automatically extended by an
additional year unless prior to such anniversary, the Company shall deliver to
the Executive, or the Executive shall deliver to the Company, written notice
that the Period of Employment will end at the expiration of the then-existing
Period of Employment, including any previous extensions thereof, and will not
be further extended except by agreement of the Company and the Executive. The
Period of Employment shall continue until the expiration of all automatic
extensions unless it is terminated as provided in this Agreement.
B. DUTIES
During the Period of Employment and except for illness,
incapacity or any reasonable vacation periods in any calendar year, the
Executive shall devote all of his business time, attention and skill
exclusively to the business and affairs of the Company and its subsidiaries.
The Executive will not engage in any other business activity and will perform
faithfully the duties which may be assigned to him from time to time by the
Chief Executive Officer of the Company consistent with Section II of this
Agreement. Nothing in this Agreement shall preclude the Executive from devoting
time during reasonable periods required for:
i. Serving, with the prior approval of the Chairman of the
Board, the Chief Executive Officer or the Board of Directors of the Company,
as a director or member of a committee
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or organization involving no actual or potential conflict of interest with the
Company;
ii. Delivering lectures and fulfilling speaking
engagements;
iii. Engaging in charitable and community activities; and
iv. Investing his personal assets in such form or manner
that will not violate this Agreement or require services on the part of the
Executive in the operation or affairs of the companies in which those
investments are made.
The activities described in clauses i, ii and iii, above will be allowed as
long as they do not materially affect or interfere with the performance of the
Executive's duties and obligations to the Company.
SECTION IV
COMPENSATION AND BENEFITS
The Company acknowledges that the Merger will constitute a
"Change of Control" for purposes of the Existing Agreement and for purposes of
the Company's 1996 Executive Retirement Plan, with the result that subject to
the limitation set forth in Section XI.B. below, upon the consummation of the
Merger, (i) all stock options held by the Executive will become fully vested
and any restrictions on any shares of restricted stock held by the Executive
will lapse and (ii) 75% of the Executive's "Target Value" under the 1996
Executive Retirement Plan will become payable to the Executive in cash. The
Company shall pay the amount due under the 1996 Executive Retirement Plan upon
consummation of the Merger by wire transfer of immediately available funds to
one or more accounts designated by the Executive. The Company also
acknowledges that, upon consummation of the Merger, grounds for a
"Constructive Discharge" will have occurred under the Existing Agreement, with
the result that the Executive will have the right to resign his employment at
any time and receive certain severance benefits. Notwithstanding the
foregoing (and without waiving the vesting and payments under clauses (i) and
(ii) above), the Executive hereby waives his right to claim Constructive
Discharge for purposes of the Existing Agreement as a result of the
consummation of the Merger or any event or circumstance contemplated thereby
and all of his rights to receive severance benefits pursuant to the Existing
Agreement in return for the rights provided in this Agreement.
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A. COMPENSATION
For all services rendered by the Executive pursuant to this
Agreement during the Period of Employment, including services as an executive,
officer, director or committee member of the Company or any subsidiary of the
Company, the Executive shall be compensated as follows:
I. BASE SALARY
The Company shall pay the Executive a fixed
base salary ("Base Salary") of not less than $650,000 per annum, subject to
annual increases as the Company deems appropriate, in accordance with the
Company's customary procedures regarding the salaries of senior officers.
Annual increases in Base Salary, once granted, shall not be subject to
revocation. Base Salary shall be payable according to the customary payroll
practices of the Company but in no event less frequently than once each month.
II. ANNUAL INCENTIVE AWARDS
The Executive will be eligible for discretionary
annual incentive compensation awards; provided, that the Executive will be
eligible to receive an annual bonus for each fiscal year that ends after the
date of the Merger Agreement and before the end of the Period of Employment
based upon a target bonus of $650,000 (each such bonus, an "Incentive
Compensation Award").
III. LONG-TERM INCENTIVE AWARDS
As of the Closing Date, the Company will grant
the Executive Non-Qualified Stock Options (the "Initial Options") with respect
to 1.8 million shares of common stock of the Company at fair market value on
the grant date, vesting in four equal installments on each of the first four
anniversaries of the Closing Date.
B. ADDITIONAL BENEFITS
i. In addition, the Executive will be entitled to
participate in all other compensation or employee benefit plans or programs
and receive all benefits and perquisites for which salaried employees of the
Company generally are eligible under any plan or program now or later
established by the Company on the same basis as similarly situated senior
executives of the Company. The Executive will participate to the extent
permissible under the terms and provisions of such plans or programs, in
accordance with program provisions. These include any group
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hospitalization, health, dental care, life or other insurance, savings, thrift
and profit sharing plans, termination pay programs, sick leave plans, travel
or accident insurance, disability insurance, company auto allowance or auto
lease plans, and contingent compensation plans, including capital accumulation
programs and stock option plans, which the Company may establish. Nothing in
this Agreement will preclude the Company from amending or terminating any of
the plans or programs applicable to salaried employees or senior executives as
long as such amendment or termination is applicable to all salaried employees
or senior executives, as the case may be. The Company will furnish to the
Executive long-term disability insurance in an amount not less than sixty
percent (60%) of Base Salary. The Company will reimburse the Executive for the
cost of an annual physical examination of the Executive by a physician
selected by the Executive. The Company will also furnish to the Executive (or
reimburse the Executive for) personal financial, investment or tax advice in
an amount not to exceed $4,500 per year.
ii. The Executive will be entitled to a minimum of four (4)
weeks of paid vacation annually.
SECTION V
BUSINESS EXPENSES
The Company will reimburse the Executive for all reasonable travel
and other expenses incurred by the Executive in connection with the
performance of his duties and obligations under this Agreement. The Executive
shall comply with such limitations and reporting requirements with respect to
expenses as may be established from time to time.
SECTION VI
DISABILITY
A. I. If the Executive becomes Disabled, as defined below, during the
Period of Employment, the Period of Employment may be terminated at the option
of the Executive upon notice of resignation to the Company or at the option of
the Company upon notice of termination to the Executive. "Disabled" means a
determination by an independent competent medical authority that the
Executive is unable to perform his duties under this Agreement and in all
reasonable medical likelihood such inability will continue for a period in
excess of one hundred and eighty (180) days. Unless otherwise agreed by the
Executive and the Company, the independent medical authority
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shall be selected by the Executive and the Company each selecting a
board-certified licensed physician and the two physicians selected designating
an independent medical authority, whose determination that the Executive is
Disabled shall be binding upon the Company and the Executive. In such event,
until the Executive reaches the age of sixty-five (65) (or such earlier date
on which he is no longer Disabled), the Company shall continue to pay the
Executive sixty percent (60%) of his Base Salary as in effect at the time of
the termination minus the amount of any disability payments the Executive may
receive under any long-term disability insurance maintained by the Company.
Such amount shall be payable as provided in Section IV.A hereof. Earned but
unpaid Base Salary and earned but unpaid incentive compensation awards will be
paid in a lump sum at the time of such termination. No incentive compensation
shall be deemed earned within the meaning of this Agreement until the
Executive is informed in writing as to the amount of such incentive
compensation the Executive is to be awarded as to a particular period.
ii. The Company will also continue the benefits and
perquisites described in this Agreement for a period of sixty (60) months
subsequent to any such termination.
iii. In the event of any such termination, all unvested
stock options held by the Executive shall become fully vested on the date of
such termination and shall remain fully exercisable until the applicable
expiration dates contained in the applicable stock option agreements pursuant
to which such stock options were granted.
iv. In the event of any such termination, any restrictions
on any shares of restricted stock issued to the Executive prior to such
termination shall lapse on the date of such termination.
B. During the period the Executive is receiving payments of
either regular compensation or disability insurance described in this
Agreement and as long as he is physically and mentally able to do so without
undue burden, the Executive will furnish information and assistance to the
Company as reasonably requested and from time to time will make himself
reasonably available to the Company to undertake assignments consistent with
his prior position with the Company and his physical and mental health. During
the disability period, the Executive is responsible and reports directly to
the Company's Chief Executive Officer. If the Company fails to make a payment
or provide a benefit required as part of this Agreement, the Executive's
obligation to furnish information and assistance will end.
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SECTION VII
DEATH
In the event of the death of the Executive during the Period of
Employment, the Period of Employment shall end and the Company's obligation to
make payments under this Agreement shall cease as of the date of death, except
for earned but unpaid Base Salary and any earned but unpaid incentive
compensation awards, which will be paid to the Executive's surviving spouse,
estate or personal representative, as applicable, in a lump sum within sixty
(60) days after the date of the Executive's death. The Executive's designated
beneficiary will be entitled to receive the proceeds of any life or other
insurance or other death benefit programs provided in this Agreement. The
Company will also continue the benefits and perquisites described in this
Agreement for the benefit of Executive's beneficiaries and surviving family
for a period of thirty-six (36) months commencing on the Executive's death.
Any stock options held by the Executive shall become fully vested on the date
of the Executive's death and shall remain fully exercisable until the
applicable expiration dates contained in the applicable stock option
agreements pursuant to which such stock options were granted. Any restrictions
on any shares of restricted stock held by the Executive at the time of
Executive's death shall lapse on the date of the Executive's death.
SECTION VIII
EFFECT OF TERMINATION OF EMPLOYMENT
A. Without Cause Termination or Constructive Discharge Before January
1, 2002. If the Executive's employment terminates due to either a Without
Cause Termination or a Constructive Discharge, as defined below, before
January 1, 2002, the Company shall immediately provide the Executive (or his
surviving spouse, estate or personal representative, as applicable) with the
following described in (x) and (y) below (in addition to any payments or
benefits that may be due under Paragraphs B. and D. below):
(x) $12,500,000 in cash, by wire transfer of immediately
available funds to one or more accounts designated by the Executive, and
(y) stock options to purchase common stock of the Company
with a Black-Scholes value of $7,500,000 on the date of termination, such
options to have terms and conditions no less favorable than the most favorable
such options granted to any
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executive of the Company or the Merger Partner during the 12-month period
ending on the date of such Without Cause Termination or Constructive
Discharge, as applicable; provided, that such options shall be fully vested
upon grant and shall remain exercisable for their entire terms without regard
to any termination of the Executive's employment.
B. Without Cause Termination and Constructive Discharge Generally. If
the Executive's employment terminates due to either a Without Cause
Termination or a Constructive Discharge, as defined below, whether before, on
or after January 1, 2002, or if the Executive resigns at any time for any
reason, the Company shall immediately pay the Executive (or his surviving
spouse, estate or personal representative, as applicable) upon such Without
Cause Termination, Constructive Discharge or resignation (in addition to any
cash payments and stock option grants that may be required pursuant to
Paragraph A. of this Section) in a lump sum an amount equal to five hundred
percent (500%) of the sum of (i) his Base Salary as in effect at the time of
such termination (without regard to any reduction thereof in violation of
Paragraph A.i. of Section IV hereof) and (ii) the higher of (A) the highest of
the annual bonuses and/or Incentive Compensation Awards paid or payable to the
Executive with respect to each of the last three years ended on or before such
termination, and (B) $520,000 (such higher amount, the "Highest Bonus").
Earned but unpaid Base Salary and earned but unpaid Incentive Compensation
Awards also will be paid in a lump sum at the time of such termination. The
benefits and perquisites described in this Agreement will be continued for
thirty-six (36) months following such termination. In the event of such a
Without Cause Termination or Constructive Discharge, any unvested options held
by the Executive (including without limitation the Initial Options) shall
become fully vested on the date of such termination, and shall remain
exercisable for the remainder of their term without regard to such
termination, and any restrictions on any shares of restricted stock held by
the Executive shall lapse on the date of such termination, in each case
notwithstanding anything to the contrary in any applicable stock option or
restricted stock agreements. In the event of any such resignation, any
unvested stock options held by the Executive that would have vested during the
thirty-six (36) months following the date of such resignation (including
without limitation the Initial Options) shall become fully vested on the date
of such resignation and shall remain exercisable for the remainder of their
term without regard to such resignation, and any restrictions on any shares of
restricted stock held by the Executive that would have lapsed during the
thirty-six (36) months following the
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date of such resignation shall lapse on the date of such resignation, in each
case notwithstanding anything to the contrary in any applicable stock option
or restricted stock agreements.
C. Termination for Cause. If the Executive's employment terminates
due to a Termination for Cause, earned but unpaid Base Salary and any earned
but unpaid Incentive Compensation Awards will be paid to the Executive in a
lump sum within sixty (60) days of such termination.
D. Termination Generally. Upon the termination of the Executive's
employment for any reason, then notwithstanding Section XI B. or any other
provision hereof, any unvested stock options held by the Executive that would
have vested during the thirty-six (36) months following the date of such
termination (including without limitation the Initial Options) shall be deemed
fully vested on the date of such termination, and shall remain exercisable for
the remainder of their term without regard to such termination. In addition,
upon the termination of the Executive's employment at any time for any reason
then notwithstanding any provision hereof but subject to Section XI B.: (i)
all unvested stock options held by the Executive that were granted before the
Closing Date shall become fully vested on the date of such termination and
shall remain fully exercisable until the applicable expiration dates contained
in the applicable stock option agreements pursuant to which such stock options
were granted; (ii) any restrictions on any shares of restricted stock issued
to the Executive prior to the Closing Date shall lapse on the date of such
termination; and (iii) any amounts that became payable to the Executive upon
the Merger pursuant to Section 6.1 of the Company's 1996 Executive Retirement
Plan (determined without regard to Section 6.2 thereof) but have not
previously been paid shall be paid in full.
E. Definitions. For this Agreement, the following
terms have the following meanings:
i. "Termination for Cause" means termination of the
Executive's employment by the Company upon a good faith determination by the
Board of Directors, by written notice to the Executive specifying the event
relied upon for such termination, due to the Executive's serious, willful
misconduct with respect to his duties under this Agreement (including but not
limited to conviction for a felony or perpetration of a common law fraud)
which has resulted or is likely to result in material economic damage to the
Company and which, in any such case, is not cured (if such is capable of being
cured) within thirty (30) days after written notice thereof to the Executive.
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ii. "Constructive Discharge" means termination of the
Executive's employment by the Executive due to the termination of Xxxxxx X.
Xxxxxx' employment by the Company or Xx. Xxxxxx for any reason before January
1, 2002 or a failure of the Company for any reason to appoint and maintain
Xxxxxx X. Xxxxxx as Chief Executive Officer of the Company for the whole of
the year 2000 and 2001; or failure of the Company to assign to the Executive,
from and after January 1, 2000, duties and responsibilities with respect to
the combined operations of the Company and the Merger Partner that are
substantially the same as his duties and responsibilities with respect to the
operations of the Company as in effect as of the date of this Agreement; or
the appointment of any individual other than the Executive, Xxxxxx X. Xxxxxx
or, prior to January 1, 2000, Xxxxx X. Xxxxxxxxx as the President or Chief
Operating Officer of the Company or to any other position reporting directly
to the Chief Executive Officer of the Company which position has a rank or
status higher than that of the Executive; or a failure of the Company to
fulfill its obligations under this Agreement in any material respect
(including without limitation any reduction of the Executive's Base Salary, as
the same may be increased during the Period of Employment, or other
compensation); or failure to appoint or reappoint the Executive to any of the
positions required by Section II hereof; or the failure of the Executive to
report directly to either the Chairman of the Company's Board of Directors or
Chief Executive Officer; or other material change by the Company in the
functions, duties or responsibilities of the Executive's position which would
reduce the ranking or level, dignity, responsibility, importance or scope of
such position; or any relocation of the Executive to a place of employment
that is more than 15 miles from the city limits of Stamford, Connecticut. The
Executive will provide the Company a written notice which describes the
circumstances being relied on for the termination with respect to this
Agreement within ninety (90) days after the event giving rise to the notice.
The Company will have thirty (30) days after receipt of such notice to remedy
the situation prior to the termination for Constructive Discharge.
iii. "Without Cause Termination" or "terminated Without
Cause" means termination of the Executive's employment by the Company other
than due to death, disability, or Termination for Cause. Without limiting the
generality of the foregoing, the Executive shall be deemed to have been
terminated Without Cause if the Company provides notice to the Executive
pursuant to Section III A. of this Agreement that the Period of Employment
will end at the expiration of the then-existing Period of Employment.
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SECTION IX
OTHER DUTIES OF THE EXECUTIVE
DURING AND AFTER THE PERIOD OF EMPLOYMENT
A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
fully cooperate with the Company and its affiliates as may be requested in
connection with any claims or legal action in which the Company or any of its
affiliates is or may become a party.
B. The Executive recognizes and acknowledges that all information
pertaining to this Agreement or to the affairs; business; results of
operations; accounting methods, practices and procedures; members; acquisition
candidates; financial condition; clients; customers or other relationships of
the Company or any of its affiliates ("Information") is confidential and is a
unique and valuable asset of the Company or any of its affiliates. Access to
and knowledge of certain of the Information is essential to the performance of
the Executive's duties under this Agreement. The Executive will not during the
Period of Employment or thereafter, except to the extent reasonably necessary
in performance of his duties under this Agreement, give to any person, firm,
association, corporation, or governmental agency any Information, except as
may be required by law. The Executive will not make use of the Information for
his own purposes or for the benefit of any person or organization other than
the Company or any of its affiliates. The Executive will also use his best
efforts to prevent the disclosure of this Information by others. All records,
memoranda, etc. relating to the business of the Company or its affiliates,
whether made by the Executive or otherwise coming into his possession, are
confidential and will remain the property of the Company or its affiliates.
C. i. During the Period of Employment and for a
twenty-four (24) month period thereafter (the "Restricted Period"), irrespective
of the cause, manner or time of any termination, the Executive will not use his
status with the Company or any of its affiliates to obtain loans, goods or
services from another organization on terms that would not be available to him
in the absence of his relationship to the Company or any of its affiliates.
ii. During the Restricted Period, the Executive will not
make any statements or perform any acts intended to or which may have the
effect of advancing the interest of any existing or prospective competitors of
the Company or any of its affiliates or in any way injuring the interests of
the Company or any of its affiliates. During the Restricted Period, the
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Executive, without prior express written approval by the Board of Directors of
the Company, will not engage in, or directly or indirectly (whether for
compensation or otherwise) own or hold proprietary interest in, manage,
operate, or control, or join or participate in the ownership, management,
operation or control of, or furnish any capital to or be connected in any
manner with, any party which competes in any way or manner with the business
of the Company or any of its affiliates, as such business or businesses may be
conducted from time to time, either as a general or limited partner,
proprietor, common or preferred shareholder, officer, director, agent,
employee, consultant, trustee, affiliate, or otherwise. The Executive
acknowledges that the Company's and its affiliates' businesses are conducted
nationally and internationally and agrees that the provisions in the foregoing
sentence shall operate throughout the United States and the world.
iii. During the Restricted Period, the Executive, without
express prior written approval from the Board of Directors, will not solicit
any members or the then-current clients of the Company or any of its
affiliates for any existing business of the Company or any of its affiliates
or discuss with any employee of the Company or any of its affiliates
information or operation of any business intended to compete with the Company
or any of its affiliates.
iv. During the Restricted Period, the Executive will not
meddle with the employees or affairs of the Company or any of its affiliates
or solicit or induce any person who is an employee of the Company or any of
its affiliates to terminate any relationship such person may have with the
Company or any of its affiliates, nor shall the Executive during such period
directly or indirectly engage, employ or compensate, or cause or permit any
person with which the Executive may be affiliated, to engage, employ or
compensate, any employee of the Company or any of its affiliates. The
Executive hereby represents and warrants that the Executive has not entered
into any agreement, understanding or arrangement with any employee of the
Company or any of its affiliates pertaining to any business in which the
Executive has participated or plans to participate, or to the employment,
engagement or compensation of any such employee.
v. For the purposes of this Agreement, proprietary
interest means legal or equitable ownership, whether through stock holding or
otherwise, of an equity interest in a business, firm or entity or ownership of
more than 5% of any class of equity interest in a publicly-held company and
the term "affiliate" shall include without limitation all subsidiaries and
licensees of the Company.
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D. The Executive hereby acknowledges that damages at law may be an
insufficient remedy to the Company if the Executive violates the terms of this
Agreement and that the Company shall be entitled, upon making the requisite
showing, to preliminary and/or permanent injunctive relief in any court of
competent jurisdiction to restrain the breach of or otherwise to specifically
enforce any of the covenants contained in this Section IX without the
necessity of showing any actual damage or that monetary damages would not
provide an adequate remedy. Such right to an injunction shall be in addition
to, and not in limitation of, any other rights or remedies the Company may
have. Without limiting the generality of the foregoing, neither party shall
oppose any motion the other party may make for any expedited discovery or
hearing in connection with any alleged breach of this Section IX.
E. The period of time during which the provisions of this Section IX
shall be in effect shall be extended by the length of time during which the
Executive is in breach of the terms hereof as determined by any court of
competent jurisdiction on the Company's application for injunctive relief.
F. The Executive agrees that the restrictions contained in this
Section IX are an essential element of the compensation the Executive is
granted hereunder and but for the Executive's agreement to comply with such
restrictions, the Company would not have entered into this Agreement.
SECTION X
INDEMNIFICATION; LITIGATION
A. The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of the Company's incorporation in effect at
that time, or the certificate of incorporation and by-laws of the Company,
whichever affords the greater protection to the Executive. The Executive will
be entitled to any insurance policies the Company may elect to maintain
generally for the benefit of its officers and directors against all costs,
charges and expenses incurred in connection with any action, suit or
proceeding to which he may be made a party by reason of being a director or
officer of the Company.
B. In the event of any litigation or other proceeding between the
Company and the Executive with respect to the subject matter of this
Agreement, the Company shall reimburse the Executive for all costs and
expenses related to the litigation
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or proceeding, including attorney's fees and expenses, providing that the
litigation or proceeding results in either settlement requiring the Company to
make a payment to the Executive or judgment in favor of the Executive.
SECTION XI
CHANGE IN CONTROL
A. In the event that there is a Change in Control, as defined below,
other than in connection with the Merger, all unvested stock options held by
the Executive shall immediately upon such Change in Control become fully
vested and shall remain exercisable until the applicable expiration dates
contained in the applicable stock option agreements pursuant to which such
stock options were granted, and all restrictions on any shares of restricted
stock held by the Executive shall lapse immediately upon such Change in
Control, in each case whether or not the Executive resigns. The Executive
shall not be entitled to receive any duplicative payments as a result of the
implementation of the provisions of this Section XI.
B. i. In the event that the accelerated vesting of the Executive's
stock options and restricted stock and/or the payment of benefits to the
Executive pursuant to the terms of the Company's 1996 Executive Retirement
Plan, in each case upon the consummation of the Merger and/or any payments or
benefits that become due under this Agreement as a result of the Executive's
voluntary resignation before the six-month anniversary of the Closing Date
(the "Merger Payments") would, in the opinion of independent tax counsel
selected by the Company and reasonably acceptable to the Executive ("Tax
Counsel"), be subject to the excise tax (the "Excise Tax") imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (in whole
or in part), as determined as provided below, the Merger Payments shall be
reduced (but not below zero) until no portion of the Merger Payments would be
subject to the Excise Tax. For purposes of this limitation, (a) no portion of
the Merger Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing shall be taken into account, (b) only the
portion of the Merger Payments which in the opinion of Tax Counsel constitute
a "parachute payment" within the meaning of Section 280G(b)(2) of the Code
shall be taken into account, (c) the Merger Payments shall be reduced only to
the extent necessary so that the Merger Payments would not be subject to the
Excise Tax, in the opinion of Tax Counsel, and (d) the value of any noncash
benefit or any deferred payment or benefit included in such Merger Payments
shall be determined by the Tax Counsel in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. If any reduction in Merger
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Payments is necessary to satisfy this Paragraph, the Executive shall be
entitled, at any time by written notice to the Company, to reduce the amount
of any Merger Payment otherwise payable to him (including, without limitation
by waiving, in whole or in part, the accelerated vesting under this Agreement
of options previously granted Executive), and to select from among the Merger
Payments those to be so reduced in order to satisfy the limitations of this
Paragraph, and the Company shall reduce the amount of such Merger Payments
accordingly. Any options the vesting of which would have otherwise accelerated
but for the provisions of this Paragraph shall continue to vest in accordance
with their respective terms, and shall, upon such vesting, remain exercisable
until the applicable expiration dates contained in the applicable stock option
agreements pursuant to which such stock options were granted, whether or not
the Executive's employment is terminated.
ii. If it is established pursuant to an opinion of Tax
Counsel or a final determination of a court or an Internal Revenue Service
proceeding that, notwithstanding the good faith of the Executive and the
Company in applying the terms of this Paragraph B., any Merger Payments paid
to the Executive or for his benefit exceeded the limitation contained in
Paragraph B. hereof, then the Executive shall pay to the Company, within 60
days of receipt of notice of such final determination or opinion, an amount
equal to the sum of (a) the excess of the Merger Payments paid to him or for
his benefit over the maximum Merger Payments that should have been paid to or
for his benefit taking into account the limitations contained in this
Paragraph B. and (b) interest on the amount set forth in clause (a) of this
sentence at the applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of his receipt of such excess until the date of such
payment; provided, however, that (x) he shall not be required to make any
payment to the Company pursuant to this Paragraph B.ii., (1) if such final
determination requires the payment by him of an Excise Tax by reason of any
Merger Payment or portion thereof or (2) in the case of the opinion of Tax
Counsel, until the expiration of the application statute of limitations or a
final determination of a court or an Internal Revenue Service proceeding that
no Excise Tax is due and (y) he shall only be required to make a payment to
the Company pursuant to this Paragraph B.ii. to the extent such payment is
deductible (or excludable from income) for federal income tax purposes.
iii. If it is established pursuant to an opinion of Tax
Counsel or a final determination of a court or an Internal Revenue Service
proceeding that, notwithstanding the good faith of the Executive and the
Company in applying the terms of Paragraph B.i. hereof, any Merger Payments
paid to him or for his
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benefit were in an amount less than the maximum Merger Payments which could be
payable to him without such payments being subject to the Excise Tax, then the
Company shall pay to him, within ninety days of receipt of notice of such
final determination or opinion, an amount equal to the sum of (a) the excess,
if any, of the payments that should have been paid to him or for his benefit
over the payments paid to or for his benefit and (b) interest on the amount
set forth in clause (a) of this sentence at the applicable federal rate (as
defined in Section 1274(d) of the Code) from the date of his non-receipt of
such excess until the date of such payment.
C. A "Change in Control" shall be deemed to have occurred if (i) a
tender offer shall be made and consummated for the ownership of fifty-one
percent (51%) or more of the outstanding voting securities of the Company,
(ii) the Company or any subsidiary thereof shall be merged with or into or
consolidated with another corporation and as a result of such merger or
consolidation less than seventy-five percent (75%) of the outstanding voting
securities of the surviving or resulting corporation shall be owned in the
aggregate by the former shareholders of the Company, (iii) the Company shall
sell substantially all of its assets to another corporation which is not a
wholly-owned subsidiary of the Company, (iv) a person, within the meaning of
Section 3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of
the Securities Exchange Act of 1934, as amended, shall acquire twenty-five
percent (25%) or more of the outstanding voting securities of the Company
(whether directly, indirectly, beneficially or of record) or (v) any other
event shall take place that a majority of the Board of Directors of the
Company, in its sole discretion, shall determine constitutes a "Change in
Control" for the purposes hereof. For purposes hereof, ownership of voting
securities shall take into account and shall include ownership as determined
by applying the provisions of Rule 13d-3(d)(1)(i) (as in effect on the date
hereof) pursuant to the Securities Exchange Act of 1934, as amended.
D. i. Anything in this Agreement or in any other plan, program or
agreement to the contrary notwithstanding and except as set forth below, in
the event that after taking into account any reduction in the Merger Payments
required pursuant to Paragraph B. above, it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, including without limitation the Merger
Payments as reduced (if required) pursuant to Paragraph B. above, but
determined without regard to any additional payments required under this
Section XI D.) (a "Payment") would be subject to the excise tax imposed by
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Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section XI D.i., if it shall
be determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Payments, in the aggregate, shall be reduced to the Reduced
Amount.
ii. Subject to the provisions of Section XI D.iii., all
determinations required to be made under this Section XI D., including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Ernst & Young LLP or such other certified public accounting
firm as may be designated by the Executive and reasonably acceptable to the
Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt a request therefor from the Executive or the Company. In the event
that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change of Control, the Executive
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section XI D., shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
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Section XII D.iii. and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
iii. The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which the Executive gives such notice
to the Company (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive shall:
a) give the Company any information reasonably
requested by the Company relating to such claim,
b) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the
Company,
c) cooperate with the Company in good faith in order
effectively to contest such claim, and
d) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section XI D.iii., the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the
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tax claimed and xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such claim and xxx
for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited solely
to such contested amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Executive shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.
iv. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section XI D., the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section XI
D.iii.) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section XI D.iii., a determination is made that the Executive
shall not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such denial
of refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
v. Except as specifically provided in Paragraph B. above or
in this Paragraph D., no provision in any plan, program or agreement
(including without limitation the Company's 1996 Executive Retirement Plan and
any and all stock option and restricted stock plans and agreements) that may
require the Executive to forego or defer any payments or other benefits as
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a result of their possible treatment as "excess parachute payments" under
Section 280G of the Code shall have any application to any payments or other
benefits provided pursuant to this Agreement.
SECTION XII
MITIGATION
The Executive shall not be required to mitigate the amount of any
payment provided for hereunder by seeking other employment or otherwise, nor
shall the amount of any such payment be reduced by any compensation earned by
the Executive as the result of employment by another employer after the date
the Executive's employment hereunder terminates.
SECTION XIII
WITHHOLDING TAXES
The Company may directly or indirectly withhold from any payments
under this Agreement all federal, state, city or other taxes that shall be
required pursuant to any law or governmental regulation.
SECTION XIV
EFFECT OF PRIOR AGREEMENTS
From and after the Closing Date, this Agreement shall supersede any
prior employment agreement between the Company and the Executive hereof and,
subject to the consummation of the Merger, any such prior employment agreement
shall be deemed terminated without any remaining obligations of either party
thereunder. This Agreement shall not affect or operate to reduce any benefit
or compensation inuring to the Executive of a kind elsewhere provided (other
than in the Existing Agreement) and not expressly provided in this Agreement.
SECTION XV
CONSOLIDATION, MERGER OR SALE OF ASSETS
Nothing in this Agreement shall preclude the Company from
consolidating or merging into or with, or transferring all or substantially
all of its assets to, another corporation which assumes this Agreement and all
obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger or sale of assets the term "the Company" will mean the
other corporation and this Agreement shall continue in full force and
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effect. Without limiting the generality of the foregoing, except where the
context otherwise requires, the term "Company" shall refer to the Company both
before and after the Merger.
SECTION XVI
MODIFICATION
This Agreement may not be modified or amended except in writing
signed by the parties. No term or condition of this Agreement will be deemed
to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that
which is specifically waived.
SECTION XVII
LIFE INSURANCE POLICIES
A. The Executive owns insurance policies nos. 3022608, 2909164, and
2993536 with Guardian Life Insurance Company of America ("Guardian"), policies
nos. 1046440 and 1074718 with Security Mutual Life Insurance Company of New
York ("Security") and policy no. 2636034 with Canada Life ("Canada") (the
Guardian, Security and Canada policies are referred to herein as the
"Policies"). The Policies provide a death benefit equal to the cash surrender
value of the Policies. The Executive has the right to name a beneficiary for
all of the death benefits, subject to the rights of the Company under the
Prior Life Insurance Agreements described below in Paragraph F. of this
Section XVII. As part of the compensation paid by the Company to the Executive
pursuant to this Agreement, the Company has advanced certain premium payments
on the Policies through the date hereof.
B. In consideration of the services performed by the Executive
pursuant to this Agreement, the Company agrees to advance annual premium
payments for the Policies, in the aggregate, in the amount of approximately
$285,000 or such other annual amount as may be agreed to in writing between
the Company and the Executive per year (the "Required Premiums") through the
calendar year in which the Executive attains age sixty (60) regardless of
whether the Executive is employed by the Company at the time the premiums are
paid; provided, however, that the Required Premiums made by the Company shall
cease in the event the Executive breaches any of the Covenants contained in
Section IX hereof (the "Covenants").
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C. In consideration of the Required Premiums to be advanced annually
by the Company pursuant to this Section XVII, whether or not the Executive is
employed by the Company pursuant to this Agreement, the Executive agrees not
to breach the Covenants.
D. In further consideration of the premiums to be advanced annually
by the Company, the Executive further agrees that between the date hereof and
until the date the Executive attains age sixty (60), the Executive may not
withdraw any amount (either as a Policy loan or a withdrawal of cash surrender
value) from the Policies.
E. The Policies have been transferred by the Executive to the escrow
agent agreed to by the Executive and the Company (the "Escrow Agent") pursuant
to the escrow agreement dated as of February 1, 1996 between the Company, the
Executive and the Escrow Agent annexed hereto as Exhibit A (the "Escrow
Agreement"). In the event the Executive violates the Covenants prior to the
Executive attaining age sixty (60), the Executive shall forfeit any interest
in the Policies, and the Escrow Agent shall transfer the Policies to the
Company, subject to the provisions of the Escrow Agreement. The Executive has
executed an assignment agreement ("Assignment Agreement"), annexed hereto as
Exhibit B, to reflect the obligation of the Executive to transfer the Policies
to the Company in such event, and the Assignment Agreement shall be held in
escrow by the Escrow Agent. Upon the Executive having attained age sixty (60)
without having violated any of the Covenants, the Escrow Agent shall return
the Policies to the Executive, and the Executive shall hold all right, title
and interest in and to the Policies, without regard to the terms of the
Covenants, but subject to the New Collateral Assignments described in
Paragraph F of this Section XVII below.
F. Pursuant to collateral assignment agreements dated December 13,
1988 and August 13, 1991, the Executive has assigned to the Company an
interest in the Policies issued by Security equal to the premiums advanced by
the Company. Pursuant to collateral assignment agreements dated June 2, 1988,
the Executive has assigned to the Company an interest in the Policies issued
by Guardian equal to the premiums advanced by the Company. These agreements
are referred to herein collectively as the "Prior Life Insurance Agreements."
New collateral assignments have been entered into between Guardian, Security
and Canada (respectively), the Company and the Executive, copies of which are
annexed hereto as Exhibit C ("New Collateral Assignments"). Each provides that
the Company shall have an interest in such respective Policies equal to the
premiums advanced by
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the Company. The New Collateral Assignments shall supersede the Prior Life
Insurance Agreements.
G. During the term of this Agreement and further provided that the
Executive does not breach the terms of the Covenants before his attainment of
age sixty (60), in the event that the Company fails to make Required Premium
payments for the Policies for any calendar year by December 31st of such year
(the "Default Date"), the Company's right under any or all of the New
Collateral Assignments to be repaid from the cash surrender value of the
Policies, in respect of the premiums advanced by the Company to the Executive,
shall be reduced by the shortfall (unless otherwise subsequently advanced by
the Company) with interest at the rate of seven percent (7%) per annum
(without regard to which Policy there is a failure to pay). Such interest
shall be calculated from the Default Date to the earlier of the (a) date the
Company advances Required Premiums with respect which there is a shortfall and
certifies to the Executive that such payment is being made to make up for the
shortfall, or (b) date of withdrawal of premiums advanced by the Company
pursuant to the New Collateral Assignment. For purposes of the preceding
sentence, the Executive may request a reduction from any Policy of the
premiums to be repaid to the Company pursuant to the New Collateral
Assignments.
H. In the event the Executive breaches any of the Covenants after
attaining age sixty (60), the Company may seek an injunction in a court of
competent jurisdiction barring the Executive from breaching such Covenants.
SECTION XVIII
GOVERNING LAW
This Agreement has been executed and delivered in the State of
Connecticut and its validity, interpretation, performance and enforcement
shall be governed by the internal laws of that state without giving effect to
the conflicts of laws provisions thereof.
SECTION XIX
ARBITRATION
A. Any controversy, dispute or claim arising out of or relating to
this Agreement or the breach hereof which cannot be settled by mutual
agreement (other than with respect to the matters covered by Section IX for
which the Company may, but shall not be required to, seek injunctive relief)
shall be finally settled by binding arbitration in accordance with the
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Federal Arbitration Act (or if not applicable, the applicable state
arbitration law) as follows: Any party who is aggrieved shall deliver a notice
to the other party setting forth the specific points in dispute. Any points
remaining in dispute twenty (20) days after the giving of such notice may be
submitted to arbitration in New York, New York, to Jams/Endispute, before a
single arbitrator appointed in accordance with the arbitration rules of
Jams/Endispute, modified only as herein expressly provided. After the
aforesaid twenty (20) days, either party, upon ten (10) days notice to the
other, may so submit the points in dispute to arbitration. The arbitrator may
enter a default decision against any party who fails to participate in the
arbitration proceedings.
B. The decision of the arbitrator on the points in dispute will be
final, unappealable and binding, and judgment on the award may be entered in
any court having jurisdiction thereof.
C. Except as otherwise provided in this Agreement, the arbitrator
will be authorized to apportion its fees and expenses and the reasonable
attorneys' fees and expenses of any such party as the arbitrator deems
appropriate. In the absence of any such apportionment, the fees and expenses
of the arbitrator will be borne equally by each party, and each party will
bear the fees and expenses of its own attorney.
D. The parties agree that this Section XIX has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this Section XIX shall be grounds for dismissal of
any court action commenced by either party with respect to this Agreement,
other than post-arbitration actions seeking to enforce an arbitration award.
In the event that any court determines that this arbitration procedure is not
binding, or otherwise allows any litigation regarding a dispute, claim, or
controversy covered by this Agreement to proceed, the parties hereto hereby
waive any and all right to a trial by jury in or with respect to such
litigation.
E. The parties shall keep confidential, and shall not disclose to any
person, except as may be required by law, the existence of any controversy
hereunder, the referral of any such controversy to arbitration or the status
or resolution thereof.
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SECTION XX
SURVIVAL
Sections V, VI, VII, VIII, IX, X, XI, XII, XVII, XVIII, XIX and XXI
shall continue in full force in accordance with their respective terms
notwithstanding any termination of the Period of Employment.
SECTION XXI
SEPARABILITY
All provisions of this Agreement are intended to be severable. In the
event any provision or restriction contained herein is held to be invalid or
unenforceable in any respect, in whole or in part, such finding shall in no
way affect the validity or enforceability of any other provision of this
Agreement. The parties hereto further agree that any such invalid or
unenforceable provision shall be deemed modified so that it shall be enforced
to the greatest extent permissible under law, and to the extent that any court
of competent jurisdiction determines any restriction herein to be unreasonable
in any respect, such court may limit this Agreement to render it reasonable in
the light of the circumstances in which it was entered into and specifically
enforce this Agreement as limited.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date first above written.
CUC INTERNATIONAL INC.
By:
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Xxxxxx X. Xxxxxx
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E. Xxxx Xxxxxxx
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