Exhibit 10.3


 


CHANGE IN CONTROL
AGREEMENT


FOR


MICHAEL GATS


 


This Agreement is entered
into this 7th day of March 2006, by and between Cutter & Buck
Inc. (the “Company”) and Michael Gats (“Executive”). Executive is an at-will
employee of the Company. The parties wish to provide Executive with severance
benefits if Executive’s employment is terminated in connection with a change in
control of the Company. The Company is willing to provide such benefits if
Executive enters into the Company’s form of Confidentiality,
Non-Competition and Nonsolicitation Agreement for executive officers.


 


NOW, THEREFORE, in
consideration of the foregoing recitals and the covenants and conditions
contained herein, the parties hereby agree as follows:


 


1.                                       CHANGE
IN CONTROL.


 


(a)                                  If,
within the period commencing 90 days prior to the date of occurrence (the “Event
Date”) of a Control Event and ending on the date twelve (12) months after
the Event Date (the “Window”), the Company terminates Executive’s employment
(other than for Cause) or Executive resigns for Good Reason, the Company shall
pay to Executive the Severance Payment in immediately available funds. If the
termination occurs prior to the Control Event, the Severance Payment is due on
the twentieth business day following the Event Date; if the termination occurs
on or subsequent to the Event Date, the Severance Payment is due on the
twentieth business day following the date of termination (the “Termination Date”).


 


(b)                                 The
Severance Payment shall be equal to 100% of Executive’s annual base salary as
of the Termination Date. If the Termination Date occurs during the Window but
prior to the Control Event, the Severance Payment shall be reduced by the sum
of any severance payments previously received by Executive from the Company (but
not below zero).


 


(c)                                  Each
of the following shall constitute a “Control Event”:


 


(1)                                  the
acquisition of Common Stock of the Company (the “Common Stock”) by any “Person”
(as such term is defined in the Rights Agreement dated as of November 20,
1998 between the Company and Mellon Investor Services LLC, including any and
all amendments thereto (the “Rights Plan”), together with all Affiliates and
Associates (as such terms are defined in the Rights Plan) of such Person, such
that such Person becomes, after the date of this Agreement, the Beneficial
Owner (as defined in the Rights Plan) of twenty-five percent (25%) or more of
the shares of Common Stock then outstanding, but shall not include any such
acquisition by (i) the Company, (ii) any subsidiary of the Company, (iii) any
employee or director of the Company as of the date hereof, or (iv) any
employee benefit plan of the Company or of any subsidiary of the Company or any
Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such employee benefit plan; or


 


(2)                                  the
consummation of any merger, consolidation, reorganization or other transaction
providing for the conversion or exchange of twenty-five percent (25%) or more
of the outstanding shares of Common Stock into securities of any Person, or
cash, or property, or a combination of any of the foregoing; or


 


(3)                                  the
consummation of any sale or other disposition of all or substantially all of
the assets of the Company; or


 


(4)                                  individuals
who, as of the date hereof, constitute the Company’s Board of Directors (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the Company’s
Board of Directors; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for the election by
the Company’s shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors.


 

















 


(d)                                 Each
of the following shall constitute “Good Reason”, provided that it occurs during
the Window:


 


(1)                                  the
material diminution of Executive’s position, duties, responsibilities or status
with the Company or its successor, as compared with the position, duties,
responsibilities or status of Executive with the Company immediately prior to
the Event Date, except in connection with the termination of Executive for
Cause;


 


(2)                                  the
Company’s assignment of Executive on a substantially full-time basis to work at
a location where the distance between the new location and Executive’s
principal residence is at least 20 miles greater than the distance between
the former location and such residence; provided, however, that this paragraph
shall not apply to travel in the furtherance of the Company’s business to an
extent substantially consistent with Executive’s business travel obligations as
of the date hereof;


 


(3)                                  the
Company’s failure to obtain an assumption of the obligations of the Company to
perform this Agreement by any successor to the Company;


 


(4)                                  any
reduction in Executive’s base salary, or a material reduction in benefits
payable to Executive or failure of the Company to pay Executive any earned
salary, bonus or benefits except with the prior written consent of Executive;


 


(5)                                  the
exclusion or limitation of Executive from participating in some form of
variable compensation plan which provides the Executive the opportunity to
achieve a level of total compensation (base salary plus variable compensation)
consistent with what the Executive had the opportunity to earn at the Event
Date; or


 


(6)                                  any
demand by any director or officer of the Company that Executive take any action
or refrain from taking any action where such action or inaction, as the case may be,
would violate any law, rule, regulation or other governmental pronouncement,
court order, decree or judgment, or breach any agreement or fiduciary duty.


 


(e)                                  Each
of the following shall constitute “Cause”:


 


(1)                                  any
violation by Executive of any material obligation under this Agreement or the
attached Confidentiality, Non-Competition and Nonsolicitation Agreement;


 


(2)                                  conviction
for commitment of a felony;


 


(3)                                  any
violation of law which has a material adverse effect on the Company;


 


(4)                                  habitual
abuse of alcohol or a controlled substance under circumstances that adversely
affect the Executive’s performance of his or her duties in any way;


 


(5)                                  theft
or embezzlement from the Company;


 


(6)                                  repeated
unexcused absence from work;


 


(7)                                  Disability
of Executive (as defined below); and


 


(8)                                  repeated
failure or refusal by Executive to carry out the reasonable directives, orders
or resolutions of the Company’s Board of Directors or any officer to whom he or
she reports.


 


(f)                                    “Disability”
shall mean any physical, mental or other health condition which renders the
Executive unable to perform the essential functions of his or her position
with or without reasonable accommodation. Any disagreement as to whether
Executive is disabled shall be resolved by a physician selected by


 


2

















 


the Company after an
examination of Executive. Executive hereby consents to such physical
examination and to the examination of all medical records of Executive necessary,
in the judgment of the examining physician, to make the determination of
disability.


 


(g)                                 Notwithstanding
any other provision of this Agreement to the contrary, in the event that any
severance or other payment, benefit or right payable or accruing to Executive
hereunder or under any of the Company’s benefit plans (the “Benefit Plans”)
would constitute a “parachute payment” as defined in Section 280G(b)(2) of
the Internal Revenue Code of 1986, as amended (the “Code”), then the total
amount of severance and other payments or benefits payable to Executive
hereunder and under the Benefit Plans which is deemed to constitute a “parachute
payment” shall not exceed and shall, if necessary, be reduced to an amount (the
“Revised Severance Payment”) equal to 2.99 times Executive’s “base amount”
as defined in Code Section 280G(b)(3). In the event of a disagreement
between the Company and Executive as to whether the provisions of Code Section 280G
are applicable or the amount of the Revised Severance Payment, such
determination shall be made by the Company’s independent public accountants or,
if such firm is unable or unwilling to render such a determination, then by a
law firm mutually acceptable to Executive and the Company. All costs relating
to such determination shall be borne by the Company. The Company and the
Executive shall cooperate in good faith to make the determination required by
this Section 1(g) by mutual agreement not later than the later
of:  (i) the fifth day preceding the
date that the Severance Payment is or would be due or (ii) the earlier of
(x) the tenth day following the expiration of any period of accelerated
vesting of options to purchase the Company’s Common Stock provided by Section 5(n)
of the Benefit Plan or (y) the tenth day following the date of exercise by
Executive of his or her last remaining option which was exercisable solely due
to the application of Section 5(n) of the Benefit Plan. Pending the final
calculation of the Severance Payment or Revised Severance Payment, the Company shall
pay the amounts described under subsection (b) above at the time and
in the manner provided herein; provided that, pending such determination, such
payments shall be reduced by such amounts as the Company estimates in good
faith to be necessary to satisfy its tax (including excise tax) withholding
obligations and effect the reduction in the amount of the Severance Payment, as
contemplated by this subsection 1(g). The aggregate amount of any
compensation actually paid or provided to Executive under the terms of this
Agreement and in excess of the Revised Severance Payment shall be deemed, to
the extent of such excess, a loan to Executive payable upon demand and bearing
interest at the rate of 8% per annum.


 


(h)                                 Notwithstanding
anything to the contrary contained in this Agreement, the definitions provided
in Section 1(c) which relate to the Company’s Rights Plan shall
remain applicable regardless of whether the Rights Plan itself remains in
effect.


 


2.                                       CONFIDENTIALITY,
NON-COMPETITION AND NONSOLICITATION AGREEMENT. In consideration of the
obligations undertaken by the Company pursuant to this Agreement,
contemporaneously with the execution of this Agreement, Executive and the
Company shall enter into the form of Confidentiality, Non-Competition and
Nonsolicitation Agreement attached hereto as EXHIBIT A and each agreement
shall be effective only if both agreements have been executed.


 


3.                                       TERM
OF AGREEMENT. The Company’s obligations under Section 1 of this Agreement
shall expire with respect to Control Events occurring on or after the second
anniversary of the date of this Agreement (“Initial Expiration Date”), provided
however, that such obligations shall automatically extend for one (1) year
on each anniversary of the Initial Expiration Date unless terminated by the
Company effective as of the last day of the then current one (1) year
extension by written notice to that effect delivered to the Executive not fewer
than ninety (90) days prior to such anniversary of the Expiration Date. Executive’s
obligations under the Confidentiality, Non-Competition and Nonsolicitation
Agreement shall survive the termination or the expiration of the Change of
Control Agreement regardless of the reason for termination or expiration
according to the terms of the Confidentiality, Non-Competition and
Nonsolicitation Agreement.


 


4.                                       AT
WILL EMPLOYMENT. Unless and to the extent otherwise agreed by the Company and
Executive in a separate written employment agreement, Executive’s employment
shall be “at will”, with either party permitted to terminate the employment at
any time, with or without cause. No term of any employment agreement between
the Company and Executive shall be construed to conflict with, lessen or expand
the obligations of the parties under this Agreement.


 


3

















 


5.                                       NOTICES.
All notices and other communications called for or required by this Agreement
shall be in writing and shall be addressed to the parties at their respective
addresses stated below or to such other address as a party may subsequently
specify by written notice and shall be deemed to have been received (i) upon
delivery in person, (ii) five days after mailing it by U.S. certified or
registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:


 


	
  To the Company:

  	
   

  	
  701 N. 34th
  Street, Suite 400

  
	
   

  	
   

  	
  Seattle, Washington
  98103

  
	
   

  	
   

  	
  Attention: Board of
  Directors

  
	
   

  	
   

  	
   

  
	
  To Executive:

  	
   

  	
  Michael Gats

  
	
   

  	
   

  	
  c/o Cutter &
  Buck Inc.

  
	
   

  	
   

  	
  701 N. 34th
  Street, Suite 400

  
	
   

  	
   

  	
  Seattle, Washington
  98103

  



 


6.                                       WITHHOLDING.
Except as described in subsection 1(g) of this Agreement, all
payments due to and all benefits to be provided to Executive hereunder shall be
subject to reduction for any applicable withholding taxes, including excise
taxes.


 


7.                                       ASSIGNMENT.
Executive’s rights and duties hereunder are personal to Executive and are not
assignable to others, but Executive’s obligations hereunder will bind his
heirs, successors, and assigns. The Company may assign its rights under
this Agreement in connection with any merger or consolidation of the Company or
any sale of all or any portion of the Company’s assets (including, without
limitation, any division or product line), provided that any such successor or
assignee expressly assumes in writing the Company’s obligations hereunder.


 


8.                                       NO
DUTY TO MITIGATE. Executive shall not be required to mitigate the amount of any
payment made or benefit provided hereunder. The Company may offset any
payment due hereunder by the amount of damages to the Company resulting from
any breach of this Agreement by Executive.


 


9.                                       GENERAL.
This Agreement constitutes the exclusive agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements or
understandings of the parties. No waiver of or forbearance to enforce any right
or provision hereof shall be binding unless in writing and signed by the party
to be bound, and no such waiver or forbearance in any instance shall apply to
any other instance or to any other right or provision. This Agreement will be
governed by the local laws of the State of Washington without regard to its
conflicts of laws rules to the contrary. The parties hereby consent to the
exclusive jurisdiction and venue of the state and federal courts sitting in
King County, Washington for all matters and actions arising under this
Agreement. The prevailing party shall be entitled to reasonable attorneys’ fees
and costs incurred in connection with such litigation. No term hereof shall be
construed to limit or supersede any other right or remedy of the Company under
applicable law with respect to the protection of trade secrets or otherwise. If
any provision of this Agreement is held to be invalid or unenforceable to any
extent in any context, it shall nevertheless be enforced to the fullest extent
allowed by law in that and other contexts, and the validity and force of the
remainder of this Agreement shall not be affected thereby.


 


IN WITNESS WHEREOF, the
parties have caused this Agreement to be signed as of the date first above
written.


 


	
  CUTTER & BUCK
  INC.

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ John T. Wyatt

  	
   

  	
  Signature

  	
  /s/ Michael Gats

  	
   

  
	
   

  	
    John T.
  Wyatt

  	
   

  	
  Printed Name:  Michael Gats

  
	
  Its:

  	
    Chief
  Executive Officer

  	
   

  	
   

  



 


4

















 


EXHIBIT A


 


CONFIDENTIALITY,
NON-COMPETITION AND NONSOLICITATION AGREEMENT


 


FOR


 


 


This Agreement is entered
into this         day of                  ,
by and between Cutter & Buck Inc. (the “Company”) and                   
(“Executive”). Executive is an at-will employee of the Company. In
consideration of the Company’s execution of the Change of Control Agreement
contemporaneously with this Agreement, Executive promises, on the terms set
forth herein, at all times to protect the Company’s proprietary information
and, for the period of time specified in Section 1(b) below, not to
solicit the customers or employees of the Company. Executive further promises
not to compete with the Company following termination of Executive’s employment
in connection with a change in control for the period of time specified in Section 1(a) below.


 


NOW, THEREFORE, in
consideration of the foregoing recitals and the covenants and conditions
contained herein, the parties hereby agree as follows:


 


1.                                       Non-competition
and Non-solicitation.


 


(a)                                  Executive
agrees that during the term of Executive’s employment with the Company and,
subject to receipt of the Severance Payment (as defined below) by the
Executive, until twelve (12) months following the Termination Date (as
defined below), Executive will not in any capacity directly or indirectly
engage in, assist others to engage in or own a material interest in any
business or activity that is, or is preparing to be, in competition with the
Company with respect to any product or service sold or service provided by the
Company up to the time of termination of employment in any geographical area in
which at the time of termination of employment such product or service is sold
or is actively engaged in. For the purposes of this Agreement, the terms “Severance
Payment” and “Termination Date” shall have the meanings assigned to them in the
Change in Control Agreement (as defined in Section 6 below).


 


(b)                                 Executive
further agrees that during the term of Executive’s employment with the Company
and for twelve months after termination of employment, regardless of the reason
for termination, he/she will not directly or indirectly call on, reveal the
name of, or otherwise solicit, accept business from or attempt to entice away
from the Company any actual or identified potential customer of the Company,
nor will he/she assist others in doing so. Executive further agrees that he/she
will not, during the period stated above, encourage or solicit any other
employee or consultant of the Company to leave such employment for any reason,
nor will he/she assist others to do so.


 


(c)                                  Executive
acknowledges that the covenants in this Section 1 are necessary and
reasonable to protect the Company in the conduct of its business and that
compliance with such covenants will not prevent him/her from pursuing his/her
livelihood. However, should any court find that any provision of such covenants
is unreasonable, invalid or unenforceable, whether in period of time, geographical
area, or otherwise, then in that event the parties hereby agree that such
covenants shall be interpreted and enforced to the maximum extent which the
court deems reasonable.


 


2.                                       Trade
Secrets and Confidential Information.


 


(a)                                  Executive
acknowledges that the Company’s business and future success depend upon the
preservation of the trade secrets and other confidential information of the
Company and its suppliers and customers (the “Secrets”). The Secrets may include,
without limitation, existing and to-be-developed or acquired product designs,
new product plans or ideas, market surveys, the identities of past, present or
potential customers, business and financial information, pricing methods or
data, terms of contracts with present or past customers, proposals or bids,
marketing plans, personnel information, procedural and technical manuals and
practices, servicing routines, and parts and supplier lists proprietary to the
Company or its customers or suppliers, and any other sorts of items or
information of the Company or its customers or suppliers which are not
generally known to the public at large. Executive agrees to protect and to
preserve as confidential during and after the term of his employment all of the


 


5

















 


Secrets at any time known
to Executive or in his/her possession or control (whether wholly or partially
developed by Executive or provided to Executive, and whether embodied in a
tangible medium or merely remembered).


 


(b)                                 Executive
shall mark all items containing any of the Secrets with prominent
confidentiality notices acceptable to the Company. Executive shall neither use
nor allow any other person to use any of the Secrets in any way, except for the
benefit of the Company and as directed by Executive’s supervisor. All material
containing or disclosing any portion of the Secrets shall be and remain the
property of the Company, shall not be removed from the Company’s premises
without specific consent from an officer of the Company, and shall be returned
to the Company upon the termination of Executive’s employment or the earlier
request of Executive’s supervisor. At such time, Executive shall also assemble
all materials in his possession or control which contain any of the Secrets,
and promptly deliver such items to the Company.


 


3.                                       Intellectual
Properties.


 


(a)                                  All
ownership, copyright, patent, trade secrecy and other rights in all works,
designs, inventions, ideas, manuals, improvements, discoveries, processes,
customer lists or other properties (the “Intellectual Properties”) made or
conceived by Executive during the term of his/her employment by the Company
shall be the rights and property solely of the Company, whether developed
independently by Executive or jointly with others, and whether or not developed
or conceived during regular working hours or at the Company’s facilities, and
whether or not the Company uses, registers, or markets the same.


 


(b)                                 In
accordance with the Company’s policy and RCW 49.44.140 and RCW 49.44.150, this
Agreement (other than Subsection 3(c)) does not apply to, and Executive
has no obligation to assign to the Company, any invention for which no Company
trade secrets and no equipment, supplies, services, or facilities of the
Company were used and which was developed entirely on Executive’s own time,
unless:  (i) the invention relates
directly to the business of the Company, (ii) the invention relates to
actual or demonstrably anticipated research or development work of the Company,
or (iii) the invention results from any work performed by Executive for
the Company.


 


(c)                                  If
and to the extent that Executive makes use, in the course of his employment, of
any items or Intellectual Properties previously developed by Executive or
developed by Executive outside of the scope of this Agreement, Executive hereby
grants the Company a nonexclusive, royalty-free, perpetual, irrevocable,
worldwide license (with right to sublicense) to make, use, sell, copy,
distribute, modify, and otherwise to practice and exploit any and all such items
and Intellectual Properties.


 


(d)                                 Executive
will assist the Company as reasonably requested during and after the term of
his employment to further evidence and perfect, and to enforce, the Company’s
rights in and ownership of the Intellectual Properties covered hereby,
including without limitation, the execution of additional instruments of
conveyance and assisting the Company with applications for patents or copyright
or other registrations.


 


4.                                       Authority
and Non-Infringement. Executive warrants that any and all items,
technology, and Intellectual Properties of any nature developed or provided by
Executive under this Agreement and in any way for or related to the Company
will be original to Executive and will not, as provided to the Company or when
used and exploited by the Company and its contractors and customers and its and
their successors and assigns, infringe in any respect on the rights or property
of Executive or any third party. Executive will not, without the prior written
approval of the Company, use any equipment, supplies, facilities, or
proprietary information of any other party. Executive warrants that Executive
is fully authorized to enter into employment with the Company and to perform under
this Agreement, without conflicting with any of Executive’s other commitments,
agreements, understandings or duties, whether to prior employers or otherwise. Executive
will indemnify the Company for all losses, claims, and expenses (including
reasonable attorneys’ fees) arising from any breach of by him/her of this
Agreement.


 


5.                                       Remedies.
The harm to the Company from any breach of Executive’s obligations under this
Agreement may be wholly or partially irreparable, and Executive agrees
that such obligations may be enforced by injunctive relief and other appropriate
remedies, as well as by damages. If any bond from the Company is required in
connection with such enforcement, the parties agree that a reasonable value of
such bond shall be $5,000. Any 


 


6

















 


amounts received by
Executive or by any other through Executive in breach of this Agreement shall
be held in constructive trust for the benefit of the Company.


 


6.                                       Executive
Agreement. In consideration of the obligations undertaken by Executive
pursuant to this Agreement, contemporaneously with the execution of this
Agreement, Executive and the Company are entering into a Change in Control
Agreement (the “Change in Control Agreement”), and each agreement shall be
effective only if both agreements have been executed. Executive’s obligations
under this Agreement are, and will continue to be, binding on Executive without
regard to whether a Change of Control has or will occur, except for the
noncompetition provisions of Section 1 (a), which shall only arise in connection
with a Change of Control.


 


7.                                       At
Will Employment. Unless and to the extent otherwise agreed by the Company
and Executive in a separate written employment agreement, Executive’s
employment shall be “at will”, with either party permitted to terminate the
employment at any time, with or without cause. No term of any employment
agreement between the Company and Executive shall be construed to conflict with
or lessen Executive’s obligations under this Agreement.


 


8.                                       Notices.
All notices and other communications called for or required by this Agreement
shall be in writing and shall be addressed to the parties at their respective
addresses stated below or to such other address as a party may subsequently
specify by written notice and shall be deemed to have been received (i) upon
delivery in person, (ii) five days after mailing it by U.S. certified or
registered mail, return receipt requested and postage prepaid, or (iii) two
days after depositing it with a commercial overnight carrier which provides
written verification of delivery:


 


	
  To the Company:

  	
   

  	
  701 N. 34th Street, Suite 400

  
	
   

  	
   

  	
  Seattle, Washington
  98103

  
	
   

  	
   

  	
  Attention: Board of
  Directors

  
	
   

  	
   

  	
   

  
	
  To Executive:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  



 


9.                                       Assignment.
Executive’s rights and duties hereunder are personal to Executive and are not
assignable to others, but Executive’s obligations hereunder will bind his/her
heirs, successors, and assigns. The Company may assign its rights under
this Agreement in connection with any merger or consolidation of the Company or
any sale of all or any portion of the Company’s assets (including, without
limitation, any division or product line), provided that any such successor or
assignee expressly assumes in writing the Company’s obligations under the
Executive Agreement.


 


10.                                 General.
This Agreement constitutes the exclusive agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements or
understandings of the parties. No waiver of or forbearance to enforce any right
or provision hereof shall be binding unless in writing and signed by the party
to be bound, and no such waiver or forbearance in any instance shall apply to
any other instance or to any other right or provision. This Agreement will be
governed by the local laws of the State of Washington without regard to its
conflicts of laws rules to the contrary. The parties hereby consent to the
exclusive jurisdiction and venue of the state and federal courts residing in
King County, Washington for all matters and actions arising under this
Agreement. The prevailing party shall be entitled to reasonable attorneys’ fees
and costs incurred in connection with such litigation. No term hereof shall be
construed to limit or supersede any other right or remedy of the Company under
applicable law with respect to the protection of trade secrets or otherwise. If
any provision of this Agreement is held to be invalid or unenforceable to any
extent in any context, it shall nevertheless be enforced to the fullest extent
allowed by law in that and other contexts, and the validity and force of the
remainder of this Agreement shall not be affected thereby.


 


7

















 


IN WITNESS WHEREOF, the
parties have caused this Agreement to be signed as of the date first above
written.


 


	
  CUTTER & BUCK
  INC.

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  Signature

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Printed Name: 

  	
   

  	
   

  
	
  Its:

  	
    Chief
  Executive Officer

  	
   

  	
   

  
									



 


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