EXHIBIT 10.1

EMPLOYMENT AGREEMENT

            This sets forth the terms of the Employment Agreement (“Agreement”)
made effective as of July 1, 2006 between Anaren, Inc. (“Employer”), a New York
corporation with common stock publicly traded on the NASDAQ, and Lawrence A.
Sala (“Employee”), an individual currently residing at 7152 Coronation Circle,
Fayetteville, NY 13066.

            IN CONSIDERATION of the mutual covenants and representations
contained herein, and other good and valuable consideration, receipt of which is
acknowledged, the parties agree as follows:

            1.     Employment.

                    (a)     Term.  Employer shall continue to employ Employee,
and Employee shall continue to serve, as President and Chief Executive Officer
for a sixty (60) month term commencing on July 1, 2006 and ending on June 30,
2011 (“Period of Employment”), subject to termination as provided in this
Agreement.

                    (b)     Salary.   Employee’s annual Base Salary is currently
$350,000 (“Base Salary”).  Employee’s Base Salary beginning July 1, 2006 shall
be determined by the Employer’s Board of Directors but shall not be set below
$350,000 annually.  Employee’s Base Salary is payable in accordance with
Employer’s regular payroll procedures for executive employees.

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                    (c)     Incentive Bonuses.  Employee shall be eligible to
earn annual incentive bonuses equal to one hundred  percent (100%) or more of
Employee’s Base Salary in effect for the applicable year pursuant to the terms
of the Management Incentive Plan which has been approved by the Board of
Directors of Employer to cover key management personnel of Employer.  Upon
termination of Employee’s employment pursuant to subparagraph 3(a), (b) or (e),
Employee shall be entitled to in addition to any other benefits provided for in
this Agreement a pro rata portion (based on Employee’s complete months of active
employment in the applicable year) of the annual incentive bonus that is payable
with respect to the year during which the termination occurs, or in the case of
a termination upon Employee’s disability pursuant to subparagraph 3(b), six
months after the disability period began.

                    (d)     Successor Agreement.  Beginning January 2, 2011,
Employee and Employer shall commence good faith negotiations, for Employee’s
continued employment by Employer after the end of the Period of Employment.  If
Employee and Employer cannot agree on the terms of Employee’s continued
employment by March 1, 2011, Employee’s employment shall be terminated as of
June 30, 2011 and Employee shall be entitled to be paid, as “Severance
Compensation”, an amount equal to the sum of (i) three years of the Base Salary
in effect on the date Employee’s employment ends, plus (ii) fifty percent (50%)
of the Severance Compensation paid pursuant to clause (d)(i) above in lieu of
incentive bonuses that Employee could have earned had he remained employed for
the three year period.  Payments required pursuant to the preceding sentence
shall be paid in three substantially equal installments, with the first
installment paid 180 days following the date Employee’s employment ends, and
with the second and third installments paid on the last business day of the
ninth and twelfth calendar month, respectively, following the date Employee’s
employment ends.  For the period during which the Severance Compensation is
paid, Employee shall be eligible to continue to participate in Employer’s
medical, dental, disability (short term and long term) and group term and whole
life insurance plans, but not in any other Employer fringe benefit plan, as if
Employee was an active, full time Employee.  Employee’s right to “COBRA”
continuation coverage under Employer’s group health benefit plan(s) shall
commence on the first day of the month following the date of the last Severance
Compensation payment made to Employee pursuant to this subsection (d).

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            2.     Duties During The Period Of Employment.  Employee shall have
full responsibility, subject to the control of Employer’s Board of Directors,
for the management of all aspects of Employer’s business and operations, and the
discharge of such other duties and responsibilities to Employer as may from time
to time be reasonably assigned to Employee by Employer’s Board of Directors. 
Employee shall report directly to the Board of Directors of Employer.  Employee
shall devote his best efforts to the affairs of Employer, serve faithfully and
to the best of Employee’s ability, and devote all of Employee’s working time and
attention, knowledge, experience, energy and skill to the business of Employer,
except that Employee may affiliate with professional associations, civic
organizations and the board’s of directors of Syracuse Research Corporation,
Carlisle, Inc. and any not-for-profit organization.  Participation by Employee
on any other board of a for-profit company may be permissible provided
permission is requested, and granted, by the Employer’s Board of Directors. 
Employee shall continue to serve as a Director of Employer’s Board of Directors
provided he is duly elected by the shareholders of Employer, but shall receive
only the compensation and other benefits described in this Agreement.

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            3.     Termination.  Employee’s employment by Employer shall be
subject to termination as follows:

                    (a)     Expiration of the Term.  This Agreement shall
terminate automatically at the expiration of the Period of Employment, unless
the parties enter into a written agreement extending Employee’s employment.

                    (b)     Termination Upon Death or Disability.  This
Agreement shall terminate upon Employee’s death or disability as follows:

 

(i)

This Agreement shall terminate automatically upon Employee’s death.  In the
event this Agreement is terminated as a result of Employee’s death, Employer
shall continue payments of Employee’s Base Salary for a period of twenty-six
(26) weeks following Employee’s death to the beneficiary designated by Employee
on the “Beneficiary Designation Form” attached to this Agreement as Appendix A.

 

 

 

 

(ii)

Employer may terminate this Agreement upon Employee’s Disability.  For the
purpose of this Agreement, Employee’s inability to perform Employee’s regular
duties by reason of physical or mental illness or injury for a period of
twenty-six (26) successive weeks (“Disability Period”) shall constitute
“Disability.”  The determination of Disability shall be made by a physician
selected by Employer and a physician selected by Employee; provided, however,
that if the two physicians so selected shall disagree, the determination of
Disability shall be submitted to Arbitration in accordance with the rules of the
American Arbitration Association, and the decision of the Arbitrator shall be
binding on both parties.

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During the Disability Period, Employee shall be entitled to 100% of Employee’s
Base Salary pursuant to Employer’s short term disability policy (and
supplemented, if necessary, by Employee’s accrued but unused sick leave),
reduced by any other benefits to which Employee may be entitled for the
Disability Period on account of such Disability, including, but not limited to,
benefits provided under New York’s Workers’ Compensation law.

 

 

 

 

(iii)

Upon termination of this Agreement due to Employee’s death or Disability, all
restrictions on any Employer stock granted to Employee shall be waived and
Employee (or his beneficiary) shall be free to dispose of any such stock
previously granted to Employee.  Additionally, Employer shall treat as
immediately exercisable each unexpired stock option held by Employee that is not
exercisable or that has not been fully exercised, so as to permit Employee (or
his beneficiary) to purchase any portion or all of the Employer common stock not
yet purchased pursuant to each such option until the tenth anniversary of the
date the option was granted.

                    (c)     Termination by Employer for Cause.  Employer may
terminate Employee’s employment immediately for “cause” by written notice to
Employee.  For purpose of this Agreement, termination shall be for “cause” if
the termination results from any of the following events:

 

(i)

material breach of this Agreement;

 

 

 

 

(ii)

material violation of Employer’s Code of Ethics and Business Conduct Policy;

 

 

 

 

(iii)

documented misconduct as an executive or director of Employer;

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(iv)

unreasonable neglect or refusal to perform the duties assigned to Employee;

 

 

 

 

(v)

conviction of a crime other than a vehicle and traffic misdemeanor;

 

 

 

 

(vi)

documented failure to follow the reasonable, written instructions of the Board
of Directors of Employer; or

 

 

 

 

(vii)

any knowing and material violation of the Security and Exchange Commissions or
NASDAQ’s rules or regulations.

          Notwithstanding any other term or provision of this Agreement to the
contrary, if Employee’s employment is terminated for cause, Employee shall
forfeit all rights to payments and benefits otherwise provided pursuant to this
Agreement; provided, however, that Base Salary will be paid to Employee through
the date of termination.

                    (d)     Termination by Employee for Good Reason.  Employee’s
employment with Employer may be terminated by Employee for “good reason”.  For
purposes of this Agreement “good reason” shall mean:

 

(i)

the assignment to Employee of any duties inconsistent with Employee’s position
(including any change in his status, offices, and titles), authority, duties,
responsibilities as contemplated by paragraphs 1 and 2 of this Agreement; or

 

 

 

 

(ii)

any failure by Employer to comply with any of the provisions of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by Employer promptly after receipt of notice
thereof given by Employee.

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                    (e)     Termination by Employer for Reasons Other Than Cause
or by Employee for Good Reason.  In the event Employer terminates Employee for
reasons other than cause, or in the event Employee terminates employment for
good reason, Employer shall pay/provide to Employee :

 

(i)

the Severance Compensation described in and payable in accordance with
subparagraph 1(d) of this Agreement which shall be paid in a single sum 180 days
following termination,

 

 

 

 

(ii)

an amount equal to the difference between the total purchase price plus capital
improvements paid by Employee for and with respect to the home currently owned
and occupied by him in the Syracuse area and the proceeds of the sale of such
home by Employee following the termination of his employment if he elects to
move outside of the Metropolitan Syracuse area to take other employment, and he
establishes to the satisfaction of the Board of Directors that he is unable
despite reasonable efforts to sell the home within one year from the termination
of his employment for a sum equal to or greater than the purchase price, or, in
lieu thereof, Employer may purchase the home for a sum equal to the price
Employee paid for it;

 

 

 

 

(iii)

the right to dispose of any restricted stock granted to Employee and to exercise
each unexpired stock option held by Employee that is not exercisable or that has
not been fully exercised, so as to permit the Employee to purchase any portion
or all of the Employer stock not yet purchased pursuant to each such option
until the tenth anniversary of the date the option was granted; and

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(iv)

Fifteen thousand dollars ($15,000) to be used for retaining  professional
outplacement services through a company of Employee’s choice.

            4.     Fringe Benefits.

                    (a)     Benefit Plans.  During the Period of Employment,
Employee shall be eligible to participate in Employer’s Non-Qualified Deferred
Compensation Plan for Certain Executive Employees, any employee pension benefit
plans (as determined and defined under Section 3(2) of the Employee Retirement
Income Security Act of 1974 as amended), Employer paid group life insurance
plans, medical plans, dental plans, short term and long term disability plans,
business travel insurance programs and other fringe benefit programs maintained
by Employer for the benefit of its executive employees.  Except as modified by
this Agreement, participation in any of Employer’s benefit plans and programs
shall be based on, and subject to satisfaction of, the eligibility requirements
and other conditions of such plans and programs.

                    (b)     Expenses.  Upon submission to Employer of vouchers
or other required documentation, Employee shall be reimbursed for Employee’s
actual out-of-pocket travel and other expenses reasonably incurred and paid by
Employee in connection with Employee’s duties.

                    (c)     Other Benefits.  During the Period of Employment,
Employee shall be entitled to receive the following additional benefits:

 

(i)

$7,400, plus an appropriate tax adjustment amount (gross- up), which will be
paid to Employee once each calendar year for Employee to pay Northwestern Mutual
Life Insurance Company for premiums on a $500,000 whole life insurance policy
(Policy # 14-279-761), which shall be owned by Employee.

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(ii)

Employer paid insurance premiums for two supplemental disability insurance
policies (Policy #s D1-581-350, D1-241-817) provided through Northwestern Mutual
Life Insurance Company;

 

 

 

 

(iii)

paid vacation of 4 weeks during each calendar year and any holidays that may be
provided to all employees of Employer; and

 

 

 

 

(iv)

payment or reimbursement of up to $10,000 per calendar year for tax preparation,
personal estate and/or financial planning expenses incurred by Employee.

            5.     Stock Options.

                    (a)     Prior Stock Option Grants.  Pursuant to Employer’s
2004 Comprehensive Long-Term Incentive Plan, Employee has been granted options
to purchase shares of common stock of Employer.  The parties hereby agree that
the Plans and any implementing option grant agreement shall be amended, if
necessary, to incorporate specific terms of this Agreement regarding the
exercise of options following Employee’s termination of employment.

                    (b)     Future Grants.  Employee shall, be eligible from
time to time to receive additional options to purchase shares of common stock of
Employer, and shall also be eligible to receive other equity based awards as
provided under Employer’s 2004 Comprehensive Long-Term Incentive Plan.

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            6.     Change of Control.

                    (a)     If Employee’s employment with Employer is terminated
by Employee or Employer for any reason other than cause within two years
following a “change of control” that occurs during the Period of Employment,
Employer shall:

 

(i)

pay Employee a severance benefit equal to the amount (and at the time(s))
determined under subparagraph 1(d) of this Agreement;

 

 

 

 

(ii)

offer to retain the services of Employee, on an independent contractor basis, as
a consultant to Employer for a period of twelve (12) months at an annual
consulting fee rate equal to Employee’s Base Salary in effect at the time of
Employee’s termination;

 

 

 

 

(iii)

provide Employee with fringe benefits, or the cash equivalent of such benefits,
identical to those described in subparagraph 4(a) for the period during which
Employee is retained as a consultant pursuant to 6(a)(ii) above;

 

 

 

 

(iv)

to the extent the benefits provided to Employee in 6(a)(iii) above are deemed
taxable benefits, Employer shall reimburse Employee for taxes owed by Employee
on the benefits and tax reimbursement;

 

 

 

 

(v)

treat as immediately exercisable each unexpired stock option that is not
otherwise exercisable or that has not been fully exercised, so as to permit
Employee to purchase any portion or all of the Employer stock or successor stock
not yet purchased pursuant to each such option until the tenth anniversary of
the date the option was granted;

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(vi)

waive all restrictions on any Employer stock granted to Employee so as to permit
Employee to dispose of any restricted stock previously granted to Employee; and

 

 

 

 

(vii)

pay to Employee the difference between the total purchase price plus capital
improvements paid by Employee for and with respect to the home currently owned
by him in the Syracuse area and the proceeds of the sale of such home by
Employee following the termination of his employment if he elects to move
outside of the Metropolitan Syracuse area to take other employment, and he
establishes to the satisfaction of the Board of Directors that he is unable
despite reasonable efforts to sell the home within one year from the termination
of his employment for a sum equal or greater to the purchase price plus capital
improvements, or, in lieu thereof, Employer may purchase the home for a sum
equal to the price Employee paid for it plus capital improvements.

                    (b)     If any portion of the amounts paid to, or value
received by Employee following a “change of control” (whether paid or received
pursuant to his paragraph 6 or otherwise) constitutes an “excess parachute
payment” within the meaning of Internal Revenue Code Section 280G, then the
parties shall negotiate a restructuring of payment dates and/or methods (but not
payment amounts) to minimize or eliminate the application of Section 280G.  If
an agreement to restructure payments cannot be reached within sixty days of the
date the first payment is due under this paragraph 6, then payment shall be made
without restructuring.  In that case, Employee shall be responsible for all
taxes and penalties payable by Employee as a result of Employee’s receipt of an
“excess parachute payment”.

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                    (c)     For purpose of this paragraph 6, a “change of
control” shall be deemed to have occurred if:

 

(i)

any “person” including a “group” as determined in accordance with Section 13D(3)
of the Securities Exchange Act of 1934, is or becomes a beneficial owner,
directly or indirectly, of securities of Employer representing 30% or more of
the combined voting power of Employer’s then outstanding securities;

 

 

 

 

(ii)

as a result of, or in connection with, any tender offer or exchange offer,
merger or other business combination the persons who are directors of Employer
before the transaction shall cease to constitute a majority of the Board of
Directors of Employer or any successor to Employer;

 

 

 

 

(iii)

Employer is merged or consolidated with another entity and as a result of the
merger or consolidation less than 70% of the outstanding voting securities of
the surviving or resulting corporation shall then be owned in the aggregate by
the former stockholders of Employer, other than (A) affiliates within the
meaning of the Exchange Act or (B) any party to the merger or consolidation;

 

 

 

 

(iv)

A tender offer or exchange offer is made and consummated for the ownership of
securities of Employer representing 30% or more of the combined voting power of
Employer’s then outstanding voting securities; or

 

 

 

 

(v)

Employer transfers substantially all of its assets to another corporation which
is not controlled by Employer.

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It is expressly understood that a “change of control” as contemplated by the
provisions of this 6(c)(i-v), shall be deemed to have occurred regardless
whether Employer’s Board of Directors approved the transaction resulting in the
change of Employer’s stock or asset ownership.

            7.     Withholding.  Employer shall deduct and withhold from
compensation and benefits provided under this Agreement all legally required
taxes and any benefit contributions required.

            8.     Covenants.

                    (a)     Confidentiality.  Employee shall not, without the
prior written consent of Employer, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of his
employment by Employer, any confidential business or technical information or
trade secrets acquired in the course of Employee’s employment by Employer. 
Employee acknowledges and agrees that it would be difficult to fully compensate
Employer for damages resulting from the breach or threatened breach of the
foregoing provision and, accordingly, that Employer shall be entitled to
temporary preliminary injunctions and permanent injunctions to enforce this
provision.  Employer’s right to obtain injunctive relief shall not, however,
diminish Employer’s right to claim and recover damages.  Employee commits to use
his best efforts to prevent the publication or disclosure of any trade secret or
any confidential information concerning the business or finances of Employer or
Employer’s affiliates, or any of its or their dealings, transactions or affairs
which may come to Employee’s knowledge in the pursuance of its duties on behalf
of Employer.

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                    (b)     No Competition.  Employee’s employment is subject to
the condition that during the term of his employment and for a period of
thirty-six (36) months from the date of the termination of his employment (the
“Date of Termination”) Employee shall not, directly or indirectly, own, manage,
operate, control or participate in the ownership, management, operation or
control of or be connected as an officer, employee, partner, director,
individual proprietor, lender, consultant or otherwise, or have any financial
interest in, or aid or assist anyone else in the conduct of any entity or
business (“a Competitive Operation”) which principal business directly competes
with Employer on the Date of Termination.  Ownership by Employee of not more
than 5% of the voting stock of any publicly held corporation shall not
constitute a violation of this paragraph.

                    (c)     Certain Affiliates of Employer.  It is understood
that Employee may have access to technical knowledge, trade secrets and customer
lists of affiliates of Employer or companies which Employer may acquire in the
future and may serve as a member of the board of directors or as an officer or
employee of an affiliate of Employer.  Employee commits that he shall not,
during the term of his employment by Employer or for a period of thirty-six (36)
months thereafter, in any way, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
be connected as an officer, employee, partner, director, individual proprietor,
lender, consultant or otherwise aid or assist anyone else in any business or
operation which competes with or engages in the business of such an affiliate.

                    (d)     Termination of Payments.  Upon the breach by
Employee of any covenant under this paragraph 8, Employer may offset and/or
recover from Employee immediately any and all of the Severance Compensation paid
to Employee under subparagraph 1(d) hereof in addition to any and all other
remedies available to Employer under law or in equity.

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            9.     Notices.  Any notice which may be given hereunder shall be
sufficient if in writing and mailed by certified mail, return receipt requested,
to Employee at his residence and to Employer at P.O. Box  178, 6635 Kirkville
Road, E. Syracuse, New York 13057 or at such other addresses as either Employee
or Employer may, by similar notice, designate.

            10.    Rules, Regulations and Policies.  Employee shall abide by and
comply with all of the rules, regulations, and policies of Employer, including
without limitation Employer’s policy of strict adherence to, and compliance
with, any and all requirements of the Security and Exchange Commission and the
NASDAQ.

            11.    No Prior Restrictions.  Employee affirms and represents that
Employee is under no obligation to any former employer or other third party
which is in any way inconsistent with, or which imposes any restriction upon,
the employment of Employee by Employer, or Employee’s undertakings under this
Agreement.

            12.    Return of Employer’s Property.  After Employee has received
notice of termination or at the end of the term of this Agreement whichever
first occurs, Employee shall immediately return to Employer all documents and
other property in his possession belonging to Employer.

            13.    Construction and Severability.  The invalidity of any one or
more provisions of this Agreement or any part thereof, all of which are inserted
conditionally upon their being valid in law, shall not affect the validity of
any other provisions to this Agreement; and in the event that one or more
provisions contained herein shall be invalid, as determined by a court of
competent jurisdiction, such invalid provision(s) shall be modified to the
extent necessary to render the provision(s) valid and consistent with the
original intent of the parties.

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            14.    Governing Law.  This Agreement was executed and delivered in
New York and shall be construed and governed in accordance with the laws of the
State of New York.

            15.    Assignability and Successors.  This Agreement may not be
assigned by Employee or Employer, except that this Agreement shall be binding
upon, and shall inure to the benefit of the successor of Employer through
merger, acquisition, corporate reorganization, or any other business
combination.

            16.    Miscellaneous.

                    (a)     This Agreement constitutes the entire understanding
and agreement between the parties with respect to Employee’s employment with
Employer and shall supersede all prior understandings and agreements, including
the employment agreement dated as of July 1, 2001.

                    (b)     This Agreement cannot be amended, modified or
supplemented in any respect, except by a subsequent written agreement entered
into by the parties.

                    (c)     The services to be performed by Employee are special
and unique; it is agreed that any breach of this Agreement by Employee shall
entitle Employer (or any successor or assigns of Employer), in addition to any
other legal remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach.

                    (d)     This Agreement shall be interpreted and applied in
all circumstances in a manner that is consistent with the intent of the parties
that amounts earned and payable pursuant to this Agreement shall not be subject
to the premature income recognition or adverse tax provisions of Internal
Revenue Code Section 409A.

            17.    Counterparts.  This Agreement may be executed in
counterparts, which together shall constitute one in the same instrument.

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            18.    Jurisdiction and Venue.  The jurisdiction of any proceeding
between the parties arising out of, or with respect to this Agreement, shall be
with New York State Supreme Court, and venue shall be in Onondaga County.  Each
party shall be subject to the personal jurisdiction of Onondaga County Supreme
Court.

 

ANAREN, INC.

 

 

 

 

By:

/s/ Carl W. Gerst, Jr.

 

 

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Carl W. Gerst, Jr.,

 

 

Vice Chairman of the Board

 

 

 

 

Date:

July 20, 2006

 

 

 

 

 

 

 

 

/s/ Lawrence A. Sala

 

 

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Lawrence A. Sala, President and CEO

 

 

 

 

Date:

July 20, 2006

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APPENDIX A

BENEFICIARY DESIGNATION FORM

          Pursuant to the Employment Agreement between ANAREN, INC. and LAWRENCE
A. SALA, dated as of July 1, 2006 (“Agreement”), I, Lawrence A. Sala, hereby
designate Tracy C. Sala, my spouse, as the beneficiary of amounts payable upon
my death in accordance with subparagraph 3(b)(i) of the Agreement.  My
beneficiary’s current address is the same as mine.

Dated: July 20, 2006

 

/s/ Lawrence A. Sala

 

 

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Lawrence A. Sala

 

 

 

 

 

 

 

 

/s/ Anne M. Savage

 

 

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Witness

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