Exhibit 99.2
CITIZENS SOUTH BANKING CORPORATION
SEVERANCE AGREEMENT
This SEVERANCE AGREEMENT (this "Agreement") is made and entered into as of
May 17, 2010 (the "Effective Date") by and between Citizens South Banking
Corporation, a Delaware corporation (the "Corporation"), Citizens South Bank
(the "Bank"), a wholly owned subsidiary of the Corporation, The Bank of
Hiawassee o Blairsville o Blue Ridge, A Division of Citizens South Bank and
Xxxxxxx Xxxxxx Xxxxxxx (the "Executive").
WHEREAS, the Bank a wholly owned subsidiary of the Corporation, wishes to
provide for the employment of the Executive as of the Effective Date, and the
Executive wishes to serve the Bank as of the Effective Date, on the terms and
conditions set forth in this Agreement; and
WHEREAS, in order to induce the Executive to accept employment with the
Bank, the parties desire to establish minimum severance benefits which shall be
due the Executive by the Corporation and the Bank in the event that the
Executive's employment with the Bank is terminated in the event of a Change in
Control (as defined below); and
WHEREAS, the Corporation and Bank wish to ensure that the Executive is not
distracted from discharging his duties if a change in control is proposed or
occurs; and
WHEREAS, none of the conditions or events included in the definition of the
term "golden parachute payment" that is set forth in section 18(k)(4)(A)(ii) of
the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal
Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)]
exists or, to the best knowledge of the Corporation, is contemplated insofar as
either of the Corporation or any of its subsidiaries is concerned.
NOW THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
1. CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT
(a) Termination of Executive Anytime After a Change in Control. If a Change
in Control occurs during the term of this Agreement and if either of the
following occurs, the Executive shall be entitled to severance benefits
specified in Section 2 of this Agreement -
(1) Termination by the Corporation or a Subsidiary (as defined herein): if
the Executive's employment with the Corporation or its Subsidiary is
involuntarily terminated at anytime after a Change in Control, except
for a termination of employment under Section 3 of this Agreement, or
(2) Voluntary Termination by the Executive: the Executive voluntarily
terminates his employment for any reason with the Corporation or
Subsidiary at anytime after a Change in Control.
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If the Executive is removed from office or if his employment terminates
after discussions with a third party regarding a Change in Control commence, and
if those discussions ultimately conclude with a Change in Control, then for
purposes of this Agreement the removal of the Executive or termination of
employment shall be deemed to have occurred after the Change in Control. For
purposes of this Agreement, "Subsidiary" means an entity in which the
Corporation directly or indirectly beneficially owns 50% or more of the
outstanding voting securities, including The Bank of Hiawassee o Blairsville o
Blue Ridge, A Division of Citizens South Bank.
(b) Definition of Change in Control. For purposes of this Agreement,
"Change in Control" means any of the following events occur -
(1) Merger: The Corporation merges into or consolidates with another
corporation, or merges another corporation into the Corporation, and
as a result less than 50% of the combined voting power of the
resulting corporation immediately after the merger or consolidation is
held by persons who were the holders of the Corporation's voting
securities immediately before the merger or consolidation. For
purposes of this Agreement, the term "person" means an individual,
corporation, partnership, trust, association, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization or other
entity, or
(2) Acquisition of Significant Share Ownership: A report on Schedule 13D,
Schedule TO, or another form or schedule (other than Schedule 13G), is
filed or is required to be filed under Sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, if the schedule discloses that the
filing person or persons acting in concert has or have become the
beneficial owner of 25% or more of a class of the Corporation's voting
securities (but this clause (2) shall not apply to beneficial
ownership of voting shares held by a Subsidiary in a fiduciary
capacity), or
(3) Change in Board Composition: During any period of two consecutive
years, individuals who constitute the Corporation's board of directors
at the beginning of the two-year period cease for any reason to
constitute at least a majority thereof; provided, however, that - for
purposes of this clause (3) - each director who is first elected by
the board (or first nominated by the board for election by
stockholders) by a vote of at least two-thirds (2/3) of the directors
who were directors at the beginning of the period shall be deemed to
have been a director at the beginning of the two-year period, or
(4) Sale of Assets: The Corporation sells to a third party substantially
all of the Corporation's assets. For purposes of this Agreement, sale
of substantially all of the Corporation's assets includes sale of
Citizens South Bank alone.
(c) Definition of Separation from Service. For purposes of this Agreement,
termination of the Executive's employment as used herein shall be construed to
require a "Separation from Service" as defined in Code Section 409A and the
Treasury Regulations promulgated thereunder, provided, however, that the
Corporation and the Executive reasonably anticipate that the level of bona fide
services the Executive would perform after termination would permanently
decrease to a level that is less than 50% of the average level of bona fide
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services performed (whether as an employee or an independent contractor) over
the immediately preceding 36-month period.
2. SEVERANCE BENEFITS
(a) Severance Benefits. The severance benefits to which the Executive is
entitled under Section 1 are as follows -
(1) Lump Sum Payment: The Corporation shall make or cause to be made a
lump sum payment to the Executive in an amount in cash equal to 1.0
times the Executive's annual compensation. For purposes of this
Agreement, annual compensation means (a) the Executive's annual base
salary on the date of the Change in Control or the Executive's
termination of employment, whichever amount is greater, plus (b) any
cash bonuses or cash incentive compensation earned for the calendar
year immediately before the year in which the Change in Control
occurred or immediately before the year in which termination of
employment occurred, whichever amount is greater, regardless of when
the bonus or incentive compensation is or was paid. The Corporation
recognizes that the bonus and incentive compensation earned by the
Executive for a particular year's service might be paid in the year
after the calendar year in which the bonus or incentive compensation
is earned. The amount payable to the Executive hereunder shall not be
reduced to account for the time value of money or discounted to
present value. The payment required under this Section 2(a)(1) is
payable no later than 5 business days after the date the Executive's
employment terminates, or in the event the Executive is a Specified
Employee (within the meaning of Treasury Regulations ss.1.409A-1(i)),
and to the extent necessary to avoid penalties under Code Section
409A, payment shall be made to the Executive on the first day of the
seventh month following the date the Executive's employment
terminates.
(2) Retirement Benefit Plans: The Corporation shall cause the Executive to
become fully vested in any qualified and non-qualified plans, programs
or arrangements in which the Executive participated if the plan,
program, or arrangement does not address the effect of a change in
control. The Corporation also shall contribute or cause a Subsidiary
to contribute to any account of the Executive under a 401(k) plan,
retirement plan, or profit-sharing plan the matching and voluntary
contributions, if any, that would have been made had the Executive's
employment not terminated before the end of the plan year. In the
event the Corporation is unable to fully vest the Executive in a
qualified plan that does not address the effect of a change in control
due to operation of law, the Executive will be paid in a single cash
lump sum distribution the present value of the cash equivalent of the
amount of benefits the Executive would have received if he were fully
vested in such plan, with such payment made at the same time the cash
severance is payable pursuant to Section 2(a)(1) of this Agreement.
(3) Other Benefit Plans: The Corporation shall cause to be continued life
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insurance and non-taxable medical and dental coverage substantially
identical to the coverage maintained by the Corporation for the
Executive prior to his severance. Such coverage and payments shall
cease after 12 months, or sooner if the Executive becomes employed
elsewhere.
(b) Mitigation Is Not Required. The Corporation hereby acknowledges that it
will be difficult and could be impossible (1) for the Executive to find
reasonably comparable employment after his employment terminates, and (2) to
measure the amount of damages the Executive suffers as a result of termination.
Additionally, the Corporation acknowledges that its general severance pay plans
do not provide for mitigation, offset or reduction of any severance payment
received thereunder. Accordingly, the Corporation further acknowledges that the
payment of severance benefits by the Corporation under this Agreement is
reasonable and will be liquidated damages, and the Executive shall not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor will any profits, income, earnings or
other benefits from any source whatsoever create any mitigation, offset,
reduction or any other obligation on the part of the Executive hereunder or
otherwise.
3. TERMINATION FOR WHICH NO SEVERANCE BENEFITS ARE PAYABLE
(a) No Severance for Termination for Cause. The Bank may terminate the
Executive's employment at any time. Anything in this Agreement to the contrary
notwithstanding, under no circumstance shall the Executive be entitled to
severance benefits if his employment terminates for Cause.
(1) "Cause" Means Commission of Any of the Following Acts: For purposes of
this Agreement, "Cause" means the Executive shall have committed any
of the following acts -
(a) Fraud, Embezzlement, Theft or Other Crime: an act of fraud,
embezzlement, or theft in connection with his duties or in the
course of his employment with the Corporation or a Subsidiary, or
commission of a felony or commission of a misdemeanor involving
moral turpitude, or
(b) Damage to Property: intentional wrongful damage to the business
or property of the Corporation or Subsidiary(ies), which, in the
Corporation's sole judgment, causes material harm to the
Corporation or Subsidiary(ies), or
(c) Negligence and Other Actions: gross negligence, insubordination,
disloyalty, or dishonesty in the performance of his duties as an
officer of the Corporation or Subsidiary(ies), or
(d) Violation of Law or Policy: intentional violation of any law or
significant policy of the Corporation or Subsidiary(ies)
committed in connection with the Executive's employment, which,
in the Corporation's sole judgment, has an adverse effect on the
Corporation or Subsidiary(ies), or
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(e) Disclosure of Trade Secrets: intentional wrongful disclosure of
secret processes or confidential information of the Corporation
or a Subsidiary, which, in the Corporation's sole judgment,
causes material harm to the Corporation or the Subsidiary, or
(f) Competing with the Corporation: intentional wrongful engagement
in any competitive activity. For purposes of this Agreement,
competitive activity means the Executive's participation, without
the written consent of a senior executive officer of the
Corporation, in the management of any business enterprise if (1)
the enterprise engages in substantial and direct competition with
the Corporation, (2) the enterprise's revenues derived from any
product or service competitive with any product or service of the
Corporation or Subsidiary(ies) amounted to 10% or more of the
enterprise's revenues for its most recently completed fiscal
year, and (3) the Corporation's revenues from the product or
service amounted to 10% of the Corporation's revenues for its
most recently completed fiscal year. A competitive activity does
not include mere ownership of securities in an enterprise and the
exercise of rights appurtenant thereto, provided the Executive's
share ownership does not give his practical or legal control of
the enterprise. For this purpose, ownership of less than 5% of
the enterprise's outstanding voting securities shall conclusively
be presumed to be insufficient for practical or legal control,
and ownership of more than 50% shall conclusively be presumed to
constitute practical and legal control.
If the Executive is now or hereafter becomes subject to an
agreement not to compete with the Corporation or Subsidiary(ies),
a breach by the Executive of that other non-competition agreement
shall be grounds for denial of severance benefits for Cause under
this clause (f) of Section 3(a)(1). However, if the Executive
engages in a competitive activity under circumstances justifying
denial of severance benefits for Cause under this clause (f),
that shall not necessarily be grounds for concluding that the
Executive has also breached the other non-competition agreement
to which he is or may become subject. This clause (f) is not
intended to and shall not be construed to supersede or amend any
provision of an employment or non-competition agreement to which
the Executive is or may become subject. This clause (f) does not
grant to the Executive any right or privilege to engage in other
activities or enterprises, whether in competition with the
Corporation or otherwise, or
(g) Termination for Cause under an Employment Agreement: any actions
that have caused the Executive to be terminated for Cause under
any employment agreement existing on the date hereof or hereafter
entered into between the Executive and the Corporation or a
Subsidiary.
(2) Definition of "Intentional": For purposes of this Agreement, no act or
failure to act on the part of the Executive shall be deemed to have been
intentional if it was due primarily to an error in judgment or negligence. An
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act or failure to act on the Executive's part shall be considered intentional if
it is not in good faith and if it is without a reasonable belief that the action
or failure to act is in the best interests of the Corporation or a Subsidiary.
(b) The Executive's Right to Severance Is Subject to Regulatory
Considerations. Payments made to the Executive under this Agreement or otherwise
are subject to and conditioned upon their compliance with 12 U.S.C. section
1828(k) and any regulations promulgated thereunder.
(c) No Severance under this Agreement for the Executive's Death or
Disability. Anything in this Agreement to the contrary notwithstanding, under no
circumstance shall the Executive be entitled to severance benefits under this
Agreement if -
(1) Death: the Executive dies while actively employed by the
Corporation or a Subsidiary, or
(2) Disability: the Executive becomes totally disabled while actively
employed by the Corporation or a Subsidiary. For purposes of this
Agreement, the term "totally disabled" means that, because of
injury or sickness, the Executive is unable to perform his
duties.
The benefits, if any, payable to the Executive or his beneficiary(ies) or estate
relating to his death or disability shall be determined solely by such benefit
plans or arrangements as the Corporation or Subsidiary may have with the
Executive relating to death or disability, not by this Agreement.
4. TERM OF AGREEMENT
The initial term of this Agreement shall be for a period of three years,
commencing on the Effective Date. On the first anniversary of the Effective Date
of this Agreement, and on each anniversary thereafter, this Agreement shall be
extended automatically for one additional year unless the Corporation's board of
directors gives notice to the Executive in writing at least 90 days before the
anniversary that the term of this Agreement will not be extended. If the board
of directors determines not to extend the term, it shall promptly notify the
Executive. References herein to the term of this Agreement mean the initial term
and extensions of the initial term. Unless terminated earlier, this Agreement
shall terminate when the Executive reaches age 65. If the board of directors
decides not to extend the term of this Agreement, this Agreement shall
nevertheless remain in force until its term expires. The board's decision not to
extend the term of this Agreement shall not - by itself - give the Executive any
rights under this Agreement to claim an adverse change in his position,
compensation or circumstances or otherwise to claim entitlement to severance
benefits under this Agreement.
5. THIS AGREEMENT IS NOT AN EMPLOYMENT CONTRACT
The parties hereto acknowledge and agree that (a) this Agreement is not a
management or employment agreement and (b) nothing in this Agreement shall give
the Executive any rights or impose any obligations to continued employment by
the Corporation or any Subsidiary or successor of the Corporation, nor shall it
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give the Corporation any rights or impose any obligations for the continued
performance of duties by the Executive for the Corporation or any Subsidiary or
successor of the Corporation.
6. WITHHOLDING OF TAXES
The Corporation may withhold from any benefits payable under this Agreement
all Federal, state, local or other taxes as may be required by law, governmental
regulation or ruling.
7. SUCCESSORS AND ASSIGNS
(a) This Agreement Is Binding on the Corporation's Successors. This
Agreement shall be binding upon the Corporation and any successor to the
Corporation, including any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Corporation by purchase,
merger, consolidation, reorganization, or otherwise. Any such successor shall
thereafter be deemed to be "Citizens South Banking Corporation" for purposes of
this Agreement. However, this Agreement and the Corporation's obligations under
this Agreement are not otherwise assignable, transferable or delegable by the
Corporation. By agreement in form and substance satisfactory to the Executive,
the Corporation shall require any successor to all or substantially all of the
business or assets of the Corporation expressly to assume and agree to perform
this Agreement in the same manner and to the same extent the Corporation would
be required to perform if no such succession had occurred.
(b) This Agreement Is Enforceable by the Executive and His Heirs. This
Agreement will inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributes and legatees.
(c) This Agreement Is Personal in Nature and Is Not Assignable. This
Agreement is personal in nature. Without written consent of the other party,
neither party shall assign, transfer, or delegate this Agreement or any rights
or obligations under this Agreement except as expressly provided in this Section
7. Without limiting the generality or effect of the foregoing, the Executive's
right to receive payments hereunder is not assignable or transferable, whether
by pledge, creation of a security interest, or otherwise, except for a transfer
by Executive's will or by the laws of descent and distribution. If the Executive
attempts an assignment or transfer that is contrary to this Section 7, the
Corporation shall have no liability to pay any amount to the assignee or
transferee.
8. NOTICES
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by hand or
mailed, certified or registered mail, return receipt requested, with postage
prepaid (a) to the Corporation at 000 Xxxxx Xxx Xxxx Xxxx, Xxxxxxxx, Xxxxx
Xxxxxxxx 00000-0000, Attn: Corporate Secretary, (b) to the Executive at the
address appearing on the Corporation's records, or (c) to such other address as
the party may designate by like notice.
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9. CAPTIONS AND COUNTERPARTS
The headings and subheadings used in this Agreement are included solely for
convenience and shall not affect the interpretation of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same agreement.
10. AMENDMENTS AND WAIVERS
No provision of this Agreement may be modified or amended except in a
writing signed by the Executive and by the Corporation. No waiver by either
party of any breach by the other or waiver of compliance with any condition or
provision of this Agreement shall be deemed a waiver of similar provisions or
conditions at the same time or at any other time.
11. SEVERABILITY
The provisions of this Agreement shall be deemed severable. The invalidity
or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions of this Agreement. Any provision held to
be invalid or unenforceable shall be reformed to the extent (and only to the
extent) necessary to make it valid and enforceable.
12. GOVERNING LAW
The validity, interpretation, construction and performance of this
Agreement shall be governed by and construed in accordance with the substantive
laws of the State of North Carolina, without giving effect to the principles of
conflict of laws of such State.
13. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the Corporation and
the Executive concerning the subject matter hereof. No rights are granted to the
Executive under this Agreement other than those specifically set forth herein.
No agreements or representations, oral or otherwise, expressed or implied
concerning the subject matter of this Agreement have been made by either party
that are not set forth expressly in this Agreement.
14. REQUIRED TARP RESTRICTIONS
The Executive acknowledges that the Corporation and its Subsidiaries are
subject to compensation restrictions and corporate governance requirements under
the provisions of the American Recovery and Reinvestment Act of 2009 applicable
to financial institutions receiving assistance under the Troubled Asset Relief
Program ("TARP"). The Executive acknowledges that during the period that the
Company has an outstanding obligation to the United States Treasury arising from
the financial assistance provided under TARP, no severance payment, including
the payments described in this Agreement, may be made to the Executive upon the
Executive's departure or a change in control. This prohibition also applies to
the acceleration of vesting that may be due to the Executive's departure or a
Change in Control. This prohibition does not apply to payments for services
performed or benefits accrued prior to termination of employment, tax-qualified
pension plan payments, payments due by reason of death or disability, as well as
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certain other exclusions as may be permitted from time to time under TARP.
Executive agrees to the restrictions under TARP as evidenced by his signature to
the Required TARP Restrictions addendum, attached as Appendix A to this
Agreement. If the Corporation ceases at any time to participate in the CPP, the
TARP Restrictions and Appendix A shall be of no further force and effect.
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IN WITNESS WHEREOF, the parties have executed this Severance Agreement as
of the date first written above.
CITIZENS SOUTH BANKING CORPORATION
By: /s/ Xxx X. Xxxxx
-----------------------------------
Xxx X. Xxxxx
President and Chief Executive Officer
CITIZENS SOUTH BANK
By: /s/ Xxx X. Xxxxx
-----------------------------------
Xxx X. Xxxxx
President and Chief Executive Officer
THE BANK OF HIAWASSEE o BLAIRSVILLE o BLUE
RIDGE, A DIVISION OF CITIZENS SOUTH BANK
By: /s/ Xxx X. Xxxxx
-----------------------------------
Xxx X. Xxxxx
President and Chief Executive Officer
EXECUTIVE
/s/ Xxxxxxx Xxxxxx Xxxxxxx
------------------------------------------
Xxxxxxx Xxxxxx Xxxxxxx
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APPENDIX A
REQUIRED TARP RESTRICTIONS
Citizens South Banking Corporation (the "Company") entered into a
Securities Purchase Agreement (the "Participation Agreement") with the United
States Department of Treasury ("Treasury") that provided for the Company's
participation in the Treasury's TARP Capital Purchase Program (the "CPP"). If
the Company ceases at any time to participate in the CPP, this Appendix A shall
be of no further force and effect.
As a condition to the Company participating in the CPP, as amended, the
Company is required to establish specified standards for incentive compensation
to its senior executive officers and to make changes to its compensation
arrangements. To comply with these requirements, and in consideration of the
benefits that you will receive, you agree as follows:
(1) No Golden Parachute Payments. The Company is prohibiting any golden
parachute payment to you during any "CPP Covered Period." A "CPP
Covered Period" is any period during which (A) you are a senior
executive officer and (B) Treasury holds an equity or debt position
acquired from the Company in the CPP.
(2) Recovery of Bonus and Incentive Compensation. Any bonus and incentive
compensation paid to you during a CPP Covered Period is subject to
recovery or "clawback" by the Company if the payments were based on
materially inaccurate financial statements or any other materially
inaccurate performance metric criteria.
(3) Compensation Program Amendments. Each of the Company's compensation,
bonus, incentive and other benefit plans, arrangements and agreements
(including golden parachute, severance and employment agreements)
either currently or hereinafter in effect and including all amendments
thereto (collectively, "Benefit Plans") with respect to you is hereby
amended to the extent necessary to give effect to provisions (1) and
(2).
In addition, the Company is required to review its Benefit Plans to ensure
that they do not encourage senior executive officers to take unnecessary and
excessive risks that threaten the value of the Company. To the extent any such
review requires revisions to any Benefit Plan with respect to you, you and the
Company agree to negotiate such changes promptly and in good faith.
(4) Definitions and Interpretation. This letter shall be interpreted as
follows: o "Senior executive officer" means the Company's "senior
executive officers" as defined in subsection 111(b)(3) of EESA.
o "Golden parachute payment" is used with same meaning as in
Section 111(b)(2)(C) of EESA.
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o "EESA" means the Emergency Economic Stabilization Act of 2008 as
implemented by guidance or regulation issued by the Department of
the Treasury and as published in the Federal Register on October
20, 2008.
o The term "Company" includes any entities treated as a single
employer with the Company under 31 C.F.R. ss. 30.1(b) (as in
effect on the Closing Date).
o The term "CPP Covered Period" shall be limited by, and
interpreted in a manner consistent with, 31 C.F.R. ss. 30.11 (as
in effect on the Closing Date).
o Provisions (1) and (2) of this letter are intended to, and will
be interpreted, administered and construed to, comply with
Section 111 of EESA (and, to the maximum extent consistent with
the preceding, to permit operation of the Benefit Plans in
accordance with their terms before giving effect to this letter).
(5) Miscellaneous. To the extent not subject to federal law, this letter
will be governed by and construed in accordance with the laws of North
Carolina. This letter may be executed in two or more counterparts,
each of which will be deemed to be an original. A signature
transmitted by facsimile will be deemed an original signature.
Intending to be legally bound, I agree with and
accept the foregoing terms on the date set forth
below.
/s/ Xxxxxxx Xxxxxx Xxxxxxx
---------------------------------------------
Xxxxxxx Xxxxxx Xxxxxxx
Date: May 17, 2010
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