EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of May 18, 1998,
between California Microwave Services Division, Inc., a Delaware corporation
(the "COMPANY"), and E. Xxxxxxx Xxxxx ("EXECUTIVE").
W I T N E S S E T H:
WHEREAS, Executive is a highly valued and trusted employee of the
Company; and
WHEREAS, the Company desires to offer Executive continued employment upon
the terms and conditions set forth herein and Executive desires to accept such
employment; and
NOW THEREFORE in consideration of the mutual benefits to be derived from
this Agreement, the Company and Executive hereby agree as follows:
1. TERM OF EMPLOYMENT; OFFICE AND DUTIES.
(a) During the Period of Employment (as hereinafter defined), the Company,
shall employ the Executive with the title of Chief Executive Officer, with the
duties and responsibilities prescribed for such office in the Bylaws of the
Company, and with such additional duties and responsibilities consistent with
such positions as may from time to time be assigned to Executive by the Board of
Directors of the Company (the "Board"). Executive agrees to perform such duties
and discharge such responsibilities in accordance with the terms of this
Agreement and in a manner as is customary for persons situated in a similar
executive capacity. Executive shall also function in such other executive
capacity for Affiliates of the Company as may be reasonably requested by the
Board.
(b) During the Period of Employment, Executive shall devote substantially
all of his working time and attention to the business and affairs of the
Company, other than during vacations and periods of illness or incapacity (in
each case, which shall be of a duration that is consistent with the policies of
the Company); provided, however, that nothing in this Agreement shall preclude
Executive from devoting time required: (i) for serving as a director, principal
or officer of any organization or entity involving no conflict of interest with
the Company with the prior consent of the Company (such consent not to be
unreasonably withheld); (ii) delivering lectures, fulfilling speaking
engagements or participating in activities of professional associations
including xxxxxxxx of commerce; (iii) engaging in charitable and community
activities; and (iv) managing personal investments; PROVIDED THAT, such
activities do not interfere with the performance of his duties hereunder and
attention to the business and affairs of the Company.
(c) For purposes of this Agreement, an "Affiliate" of a person or entity
shall mean a person or entity that directly or indirectly controls, is
controlled by or is under common control with such person or entity.
2. TERM; PERIOD OF EMPLOYMENT
The period of employment hereunder (the "Period of Employment") shall
commence on the Closing Date (as defined in that certain Stock Purchase
Agreement of even date herewith among Telscape International, Inc. ("Telscape"),
California Microwave, Inc. ("CMI") and the Company, ( the "SPA"))(the "Effective
Date") and, unless sooner terminated pursuant to this Agreement, shall terminate
on the third anniversary of the Effective Date. The Period of Employment may be
extended by the written agreement of the Company and Executive; provided
however, that notwithstanding any other provision of this Agreement or any such
extension, the Period of Employment shall not expire prior to (a) the first
anniversary of a Change of Control (as hereinafter defined) if such Change of
Control occurs after June 30, 1999 or (b) the second anniversary of a Change of
Control if such Change of Control occurs on or prior to June 30, 1999.
3. COMPENSATION AND BENEFITS.
For all services rendered by Executive in any capacity during the Period
of Employment, including without limitation, services as an executive officer,
director, or member of any committee of the Company or any subsidiary, Affiliate
or division thereof, Executive shall be compensated as follows:
(a) BASE SALARY. The Company shall pay Executive a fixed salary ("Base
Salary") at a rate of US $175,000 per year. The Board will periodically review,
at least annually, Executive's Base Salary with a view to increasing such Base
Salary if, in the judgment of the Board, the earnings of the Company or the
services of Executive merit such an increase. Annual increases in Base Salary,
once granted, shall not be subject to revocation and shall become a part of the
Base Salary. Base Salary will be payable in accordance with the customary
payroll practices of the Company, but in no event less frequently than monthly.
(b) BONUS.
(ii) If EBITDA for the twelve months ending June 30, 1999 exceeds
$2,600,000 (the "Threshold"), then the Company shall pay to Executive a cash
bonus, which shall not exceed $105,000 (the "Cap"), in an amount (not to exceed
the Cap) determined by multiplying (a) 12.16% by (b) the amount by which EBITDA
for such twelve month period exceeds the Threshold. "EBITDA" shall mean for any
specified period the consolidated net income as determined in accordance with
GAAP of the Company and its subsidiaries for such period: (a) plus (without
duplication and to the extent included in determining such net income) (i) net
interest expense, (ii) provision for income taxes, and (iii) depreciation and
amortization, and (b) minus (without duplication and to the extent included in
determining such net income) (i) the difference between the total inventory
reserve amount on the Closing Date Balance Sheet (as
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defined in the SPA) lower than $857,114, (ii) the difference between the total
accounts receivable reserve amount on the Closing Date Balance Sheet lower than
$82,890, (iii) any gains (or plus losses), together with any related provision
for income taxes on such gains (or losses), realized in connection with any sale
of assets other than the sale of inventory in the ordinary course of business
(including without limitation dispositions pursuant to sale and leaseback
transactions), (iv) extraordinary gains (or plus losses), together with any
related provision for income taxes on such extraordinary gains (or losses) and
(v) any gains (or plus losses) from discontinued operations, together with any
related provision for income taxes on such gains (or losses) from discontinued
operations.
(ii) The Board shall negotiate in good faith with Executive to set
bonus targets and bonus amounts for each twelve month period occurring after
June 30, 1999 during the Period of Employment.
(c) FRINGE BENEFITS. During the Period of Employment, Executive shall be
entitled to participate in such fringe benefit, insurance, deferred compensation
and stock option plans or programs of the Company, if any, to the extent that
his position, tenure, salary, age, health and other qualifications make him
eligible to participate, subject to the rules and regulations applicable
thereto. Such additional benefits shall include, but not be limited to, paid
sick leave and individual health insurance, all in accordance with the policies
of the Company as well as those specific benefits described in Schedule A
attached hereto. Except as specifically set forth herein or therein, the terms
of, and participation by Executive in, any such plan or program shall be
determined by the Board in its sole discretion. In the event of Executive's
Disability, the Executive and his family shall continue to be covered by all of
the Company's life, medical, health and dental plans, and salary continuation
plans (if any), at the Company's expense, for the lesser of the term of such
disability or the remaining term of the Period of Employment. In the event of
Executive's death, Executive's family shall continue to be covered by all of the
Company's medical, health and dental plans, at the Company's expense, for
twenty-four (24) months following Executive's death.
(d) WITHHOLDING AND EMPLOYMENT TAX. Payment of all compensation hereunder
shall be subject to customary withholding tax and other employment taxes and
deductions as may be required with respect to compensation paid by an
employer/corporation to an Executive.
(e) VACATIONS. Executive shall be entitled to annual vacations in
accordance with the policies of the Company, but in no event less than two weeks
and Executive shall be eligible for such benefit immediately.
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4. BUSINESS EXPENSES.
The Company shall pay or reimburse Executive for all reasonable travel or
other expenses incurred by Executive in connection with the performance of his
duties under this Agreement, including reimbursement for attending meetings of
the Board, in accordance with such procedures as the Company may from time to
time establish for senior officers and as required to preserve any deductions
for income taxation purposes to which the Company may be entitled.
5. TERMINATION OF EMPLOYMENT.
Notwithstanding any other provision of this Agreement, the Period of
Employment may be terminated:
(a) By the Company, in the event of Executive's death, Disability (as
hereinafter defined) or for Cause (as hereinafter defined). For purposes of this
Agreement, 'Cause' shall mean Executive's conviction of a crime involving an act
or acts of dishonesty, fraud or moral turpitude by Executive with regard to the
Company, which act or acts constitute a felony and the willful and continued
failure to substantially perform Executive's duties hereunder after receipt of
written notice from the Company specifically setting forth such failure. For
purposes of this Agreement, 'Disability' shall mean the inability of Executive,
in the reasonable judgment of a physician approved by the Board (which approval
shall not be unreasonably withheld), to perform his duties of employment for the
Company because of any physical or mental disability or incapacity, where such
disability shall exist for an aggregate period of more than 120 days in any
365-day period or for any period of 90 consecutive days. The Company shall by
written notice to Executive specify the event relied upon for termination
pursuant to this Subsection 5(a), and the Period of Employment hereunder shall
be deemed terminated as of the date of such notice; provided, that in the event
of Executive's death, such termination shall occur automatically as of the date
of death. In the event of any termination under this Subsection 5(a), the
Company shall pay all amounts then due to Executive under Section 3(a) of this
Agreement, in addition to any severance payments required by law, and, if such
termination was due to Cause, the Company shall have no further obligations to
Executive under this Agreement.
(b) By the Company, for any reason and in its sole and absolute
discretion, provided that in such event the Company shall, in addition to any
severance payments required by law, as liquidated damages or severance pay, or
both, continue to pay to Executive the Base Salary for the longer of (i) a
period of one year after such termination; and (ii) the period beginning on the
date of such termination and ending on the second anniversary of the Closing
Date.
(c) By Executive, if the Board fails to elect or reelect Executive to, or
removes Executive from the office referred to in Section 1(a) or discontinues or
denies to Executive any of the compensation or benefits referred to in Sections
3, 4 or 13 of their Agreement (other than in accordance with the terms of this
Agreement). In the event of any termination under this Section 5(c), the Company
shall, in addition to any severance payments required by law, as liquidated
damages or severance pay, or both, continue to pay to Executive the Base Salary
for the longer of (i) a period of one year after such termination; and (ii) the
period beginning on the
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date of such termination and ending on the second anniversary of the Closing
Date.
(d) During any period in which payments are payable by the Company to
Executive pursuant to Sections 5(b) or 5(c) hereof (such payments being
hereinafter collectively referred to as "Termination Payments"), Executive and
his family shall continue to be covered by the Company's life (other than in the
case of termination by reason of Executive's death), medical, health and death
plans. Such coverage shall be at the Company's expense to the same extent as if
Executive were still employed by the Company.
6. NON-COMPETITION.
During the Period of Employment hereunder and for the one year period
thereafter, Executive shall not, anywhere within the United States of America or
anywhere else in the world in which the Company is then doing business, engage
as an individual in activities in competition with the business of the Company,
including but not limited to any aspect of the Business (as defined in the SPA).
In addition, for one year following the later of the last day of the Period of
Employment or the payment of the last Termination Payment hereunder, Executive
shall not, within any jurisdiction in which the Company is then doing business,
or within a one hundred (100) mile radius of any such jurisdiction, engage in
activities in competition with the business of the Company as an individual.
Investments in less than five percent of the outstanding securities of any class
of a publicly-traded company shall not be prohibited by this Section 6.
Notwithstanding the foregoing, if the Company terminates Executive without
Cause, then the restrictions contained in this Section 6 shall terminate and be
of no further force and effect as of the date on which the last Termination
Payment is made to Executive.
7. INVENTIONS AND CONFIDENTIAL INFORMATION.
The parties hereto recognize that a major need of the Company is to
preserve its specialized knowledge, trade secrets, and confidential information.
The strength and good will of the Company is derived from the specialized
knowledge, trade secrets, and confidential information generated from experience
with the activities undertaken by the Company. The disclosure of this
information and knowledge to competitors would be beneficial to them and
detrimental to the Company, as would the disclosure of information about the
marketing practices, pricing practices, costs, profit margins, design
specifications, analytical techniques, and similar items of the Company. By
reason of his being a senior executive of the Company, Executive has or will
have access to, and has obtained or will obtain, specialized knowledge, trade
secrets and confidential information about the Company's operations wherever it
does business. Therefore, Executive hereby agrees as follows, recognizing that
the Company is relying on these agreements in entering into this Agreement:
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(i) During and for three years after the Period of Employment
hereunder, Executive will maintain as confidential and will not use, disclose to
others, or publish or otherwise make available to any other party any inventions
or any confidential business information about the affairs of the Company, or
its Affiliates, including but not limited to confidential information concerning
their products, methods, product purchasing arrangements and agreements, product
distribution arrangements and agreements, engineering designs, system designs
and standards, analytical techniques, technical information, customer
information, Executive information, and other confidential information acquired
by him in the course of his past or future services for the Company. Executive
agrees to hold as the Company's property all memoranda, books, papers, letters,
formulas and other data, and all copies thereof and therefrom, in any way
relating to the Company's or its Affiliates' businesses and affairs, whether
made by him or otherwise coming into his possession, and on termination of his
employment, or on demand of the Company, at any time, to deliver the same to the
Company within twelve (12) hours of such termination or demand.
(ii) During the Period of Employment hereunder and for one year
following the last day of the Period of Employment, Executive will not induce or
otherwise attempt to influence any executive of the Company, to leave the
Company's employment (unless the Board shall have authorized such employment and
the Company shall have consented thereto in writing).
8. INDEMNIFICATION.
The Company will indemnify Executive (and his legal representatives) to
the fullest extent permitted by the laws of the state in which the Company is
incorporated, as in effect at the time of the subject act or omission, or the
Certificate of Incorporation and Bylaws of the Company, as in effect at such
time or on the date of this Agreement, whichever affords greater protection to
Executive, and Executive shall be entitled to the protection of any insurance
policies (in accordance with the terms thereof) the Company may elect to
maintain generally for the benefit of its directors and officers, against all
costs, charges and expenses whatsoever incurred or sustained by him or his legal
representative in connection with any action, suit or proceeding to which he (or
his legal representatives or other successors) may be made a party by reason of
his being or having been a director or officer of the Company or any of its
subsidiaries.
9. LITIGATION EXPENSES.
In the event of any litigation or other proceeding between the Company and
Executive with respect to the subject matter of this Agreement and the
enforcement of the rights hereunder, the Company shall reimburse Executive for
all of his reasonable costs and expenses relating to such litigation or other
proceeding, including, without limitation, his reasonable attorneys' fees and
expenses, provided that such litigation or proceeding results in:
(i) settlement requiring the Company to make a payment to Executive,
or
(ii) final judgment or order in favor of Executive.
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10. CONSOLIDATION; MERGER; SALE OF ASSETS; CHANGE OF CONTROL
Nothing in this Agreement shall preclude the Company from combining,
consolidating or merging with or into, transferring all or substantially all of
its assets to, or entering into a partnership or joint venture with, another
corporation or other entity, or effecting any other kind of corporate
combination (any of which is a "Change of Control") provided that the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon a Change in Control, this Agreement shall inure to the
benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or joint venture, and the term
'Company,' as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle Executive and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such Change
of Control not occurred.
11. SURVIVAL OF OBLIGATIONS.
Sections 5, 6, 7, 8 and 9 shall survive the termination for any reason of
this Agreement (whether such termination is by the Company, by Executive, upon
the expiration of this Agreement or otherwise). Notwithstanding the foregoing,
if the Company terminates Executive without Cause, then the restrictions
contained in Section 6 shall terminate and be of no further force and effect as
of the date on which the last Termination Payment is made to Executive.
12. SEVERABILITY.
In case any one or more of the provisions or part of a provision contained
in this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity, illegality or
unenforceability shall be deemed not to affect any other jurisdiction or any
other provision or part of a provision of this Agreement, nor shall such
invalidity, illegality or unenforceability affect the validity, legality or
enforceability of this Agreement or any provision or provisions hereof in any
other jurisdiction; and this Agreement shall be reformed and construed in such
jurisdiction as if such provision or part of a provision held to be invalid or
illegal or unenforceable had never been contained herein and such provision or
part reformed so that it would be valid, legal and enforceable in such
jurisdiction to the maximum extent possible. In furtherance and not in
limitation of the foregoing, the Company and Executive each intend that the
covenants contained in Sections 6 and 7 shall be deemed to be a series of
separate covenants, one for each state, territory or jurisdiction of the United
States of America and any foreign country referenced therein. If, in any
judicial proceeding, a court shall refuse to enforce any of such separate
covenants, then such unenforceable covenants shall be deemed eliminated from the
provisions hereof for the purpose of such proceedings to the extent necessary to
permit the remaining separate covenants to be enforced in such proceedings. If,
in any judicial proceeding, a court shall refuse to enforce any one or more of
such separate covenants because the total time thereof or the geographic area
covered thereby is deemed to be
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excessive or unreasonable, then it is the intent of the parties hereto that such
covenants, which would otherwise be unenforceable due to such excessive or
unreasonable period of time or geographic area, be enforced for such lesser
period of time as shall be deemed reasonable and not excessive by such court.
13. TELSCAPE OPTIONS.
On the Closing Date, Telscape shall grant to Executive options to buy up
to 10,000 shares (the "Option Shares') of Telscape's common stock, par value
$.001 per share (the "Common Stock"), at a price per share equal to the Fair
Market Value of a share of Common Stock as of the Closing Date. The Option
Shares shall vest in three equal installments on each anniversary of the Closing
(as defined in the SPA) and shall be otherwise subject to the terms and
conditions of Telscape's customary option agreements. For purposes of this
Agreement, "Fair Market Value" means the average of the closing prices of the
sales of Common Stock on all securities exchanges on which the Common Stock may
at the time be listed, or, if there have been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day the Common Stock is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York City time, or, if on any day the Common
Stock is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau Incorporated, or any similar successor
organization, as applicable, averaged over a period of 20 days consisting of the
day immediately preceding the Closing Date and the 20 consecutive business days
prior to such day; provided that if at any time the Common Stock is not listed
on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the Fair Market Value of a share of Common Stock shall
be the fair value of a share of Common Stock determined in good faith by the
board of directors of Telscape.
14. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the Schedules hereto contain the entire agreement
between the Company and Executive with respect to the subject matter hereof and
thereof. This Agreement may not be amended, waived, changed, modified or
discharged except by an instrument in writing executed by or on behalf of the
party against whom enforcement of any amendment, waiver, change, modification or
discharge is sought. No course of conduct or dealing shall be construed to
modify, amend or otherwise affect any of the provisions hereof.
15. NOTICES.
Any notice provided for in this Agreement shall be in writing and shall be
mailed certified, first class mail (postage prepaid return receipt requested )
or sent by reputable overnight courier service (charges prepaid) as follows:
NOTICES TO EXECUTIVE:
E. Xxxxxxx Xxxxx
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c/o California Microwave Services Division, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
NOTICES TO THE COMPANY:
California Microwave Services Division, Inc.
c/o Telscape International, Inc.
0000 Xxxx Xxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxx
Phone: (000) 000-0000
or at such address or to the attention of such other Person as the recipient
party has specified by prior written notice to the sending party. Notices will
be deemed to have been given hereunder when received as indicated on the return
receipt or courier xxxx of lading or other delivery records.
16. ASSIGNABILITY.
Except as otherwise provided in Section 10, this Agreement shall not be
assignable by either party and shall be binding upon, and shall inure to the
benefit of, the heirs, executors, administrators, legal representatives,
successors and assigns of the parties. In the event that all or substantially
all of the business of the Company is sold or transferred, then this Agreement
shall be binding on the transferee of the business of the Company whether or not
this Agreement is expressly assigned to the transferee.
17. GOVERNING LAW.
All issues and questions concerning the construction, validity,
enforcement and interpretation of this Agreement and the exhibits and schedules
hereto shall be governed by, and construed in accordance with, the laws of the
State of California, without giving effect to any choice of law or conflict of
law rules or provisions (whether of the State of California or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of California. In furtherance of the foregoing, the
internal law of the State of California shall control the interpretation and
construction of this Agreement (and all schedules and exhibits hereto), even
though under that jurisdiction's choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
18. WAIVER AND FURTHER AGREEMENT.
Any waiver of any breach of any terms or conditions of this Agreement
shall not operate as a waiver of any other breach of such terms or conditions or
any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
Each of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as the other party may reasonably
require in
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order to effectuate the terms and purposes of this Agreement.
19. HEADINGS OF NO EFFECT.
The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
20. ARBITRATION
Any dispute among the parties arising out of or relating to this Agreement
or breach hereof, shall be settled by arbitration in accordance with the Rules
of the American Arbitration Association. The arbitration shall be conducted by
three (3) neutral arbitrators who sit in San Jose, California. Any award made by
such arbitrators shall be binding and conclusive for all purposes hereof, may
include injunctive relief, as well as orders for specific performance and may be
entered as a final judgement in any court of competent jurisdiction. No
arbitration arising out of or relating to this Agreement shall include, by
consolidation or joinder or in any other manner, parties other than the parties
hereto and other persons substantially involved in common questions of fact or
law whose presence is required if complete relief is to be afforded in
arbitration. The costs and expense of such arbitration shall be born in
accordance with the determination of the arbitrators and may include reasonable
attorney fees. Each party hereunder further agrees that service of process may
be made upon it by registered or certified mail or personal service at the
address for notices provided herein.
21. EFFECTIVE DATE.
Notwithstanding any other provision of this Agreement to the contrary,
this Agreement shall not become effective until the Closing Date and as of the
Closing (as defined in the SPA), and in the event the Closing does not occur,
this Agreement shall be null and void and of no further force and effect without
any further action of the parties hereto.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the date first written above.
CALIFORNIA MICROWAVE SERVICES
DIVISION, INC.
By: __________________________
Name:
Title:
______________________________
E. Xxxxxxx Xxxxx
For Purposes of Section 13 Only:
TELSCAPE INTERNATIONAL, INC.
By:____________________________
Name:
Title:
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SCHEDULE A
EXECUTIVE FRINGE BENEFITS
Throughout the Period of Employment, each of E. Xxxxxxx Xxxxx, Xxxxx X.
Xxxxx and Xxxxxxx X. Xxxxxxxx shall be entitled to the following Executive
Fringe Benefits in accordance with Section 3 of this Agreement regardless of the
policies of the Company with regard to employees generally or other executives
specifically and in addition to the Fringe Benefits listed in the body of the
Agreement:
Full (100%) Company paid or reimbursement of costs of complete annual
physical exam;
Full (100%) Company paid or reimbursement of life insurance at two (2)
times Base Salary; and
Company paid or reimbursement of costs of individual personal tax
preparation expenses up to and including $2,500 if by BDO Xxxxxxx or up
and including $2,000 if by a tax preparer of Executive's choosing.
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