Document:

BEE-2012.12.31-EX10.49

Exhibit 10.49
FIXED RATE PROMISSORY NOTE
DEFINED TERMS
	
		
	Execution Date:
As of November 1, 2012
	City and State of Signing:
Chicago, Illinois

	Loan Amount: $18,000,000.00
	Interest Rate:  10% per annum

	Borrower: New Aventine, L.L.C.
a Delaware limited liability company 

	Borrower's Address:
New Aventine, L.L.C.
200 West Madison, Suite 1700
Chicago, Illinois 60606
with a copy to:
Perkins Coie LLP 
131 South Dearborn Avenue, Suite 1700 
Chicago, Illinois 60603 
Attention:  Bruce A. Bonjour 

	Holder:  Metropolitan Life Insurance Company, a New York corporation

	

Holder's Address:

Metropolitan Life Insurance Company
10 Park Avenue
Morristown, New Jersey 07962
Attn:   Managing Director-Debt Strategies Group
with a copy to:
Metropolitan Life Insurance Company
333 South Hope
Street, Suite 3650
Los Angeles, California 90071
Attention:  Regional Director/Officer in Charge 

	Maturity Date: December 1, 2017.
	Advance Date: The date the funds are disbursed or deemed disbursed to Borrower.

	
		
	Interest Only Period:  The period commencing on the Advance Date and ending on November 30, 2017; provided, however that (i) the Note shall be subject to mandatory prepayment upon the occurrence, from time to time, of a Cash Flow Prepayment Event (as defined in Section 4(f) of the Restricted Account Agreement) and (ii) the Note shall be subject to accrual upon the occurrence, from time to time, of a Fixed Rate Note Accrual Event (as defined in Section 4(d)(ii) of the Restricted Account Agreement).
	Interest Installment Date:  The first day of the second calendar month following the Advance Date.

	Monthly Installment:  Equal monthly installments of interest at the Interest Rate each in the amount of  $150,000; provided however that (i)  if the Note is prepaid in part, the Monthly Installment shall be recalculated effective as of the date of such partial prepayment and (ii) if a Fixed Rate Note Accrual Event occurs, the Monthly Installment shall be recalculated effective as of such date in accordance with the terms of this Note.
	Permitted Prepayment Period:  The Note may not be prepaid in whole or in part at any time prior to the Maturity Date except as follows: 
(i) Commencing on the first day of the first month following the Advance Date, Borrower may prepay the Note in whole or  in part, on 30 days’ prior written notice. 
(ii) The Note must be prepaid in part at any time a Cash Flow Prepayment Event occurs.
(iii) The Note must be prepaid, in whole and not in part, at any time the Floating Rate Note is prepaid, in whole or in part.

	Liable Party:  Strategic Hotel Funding, L.L.C., a Delaware limited liability company

Addresses of Liable Party:
Strategic Hotel Funding, L.L.C.
200 West Madison, Suite 1700
Chicago, Illinois 60606

with a copy to:

Perkins Coie LLP 
131 South Dearborn Avenue, Suite 1700 
Chicago, Illinois 60603 
Attention:   Bruce A. Bonjour 

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	Operating Lessee:  New DTRS La Jolla, L.L.C., a Delaware limited liability company pursuant to the Lease Agreement entered into by Borrower, as landlord and Operating Lessee, as tenant dated as of August 31, 2007 and amended as of January 1, 2012.
Addresses of Operating Lessee:

New DTRS La Jolla, L.L.C. 
200 West Madison, Suite 1700
Chicago, Illinois 60606

 
with a copy to:

Perkins Coie LLP 
131 South Dearborn Avenue, Suite 1700 
Chicago, Illinois 60603 
Attention: Bruce A. Bonjour 

	Late Charge: An amount equal to four cents ($.04) for each dollar that is overdue.

	Default Rate: An annual rate equal to the Interest Rate plus four percent (4%).

	

Note:  This Fixed Rate Promissory Note.

Floating Rate Note:  As defined in the Deed of Trust.

Deed of Trust:  The Deed of Trust, Security Agreement, and Fixture Filing dated as of the  Execution Date granted by Borrower and Operating Lessee to the Trustee named in the Deed of Trust for the benefit of Holder. 

Interest Rate Cap Assignment:  As defined in the Deed of Trust.

Restricted Account Agreement:  As defined in the Deed of Trust.

Loan Documents:  As defined in the Deed of Trust. 

Guaranty:  As defined in the Deed of Trust. 

Indemnity Agreement:  As defined in the Deed of Trust. 

The Unsecured Indemnity Agreement and Guaranty are not Loan Documents and shall survive repayment of the Loan or other termination of the Loan Documents. 

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FOR VALUE RECEIVED, Borrower promises to pay to the order of Holder at Holder’s Address or such other place as Holder may from time to time designate, the Loan Amount with interest payable in the manner described below, in money of the United States of America that at the time of payment shall be legal tender for payment of all obligations.
Capitalized terms which are not defined in this Note shall have the meanings set forth in the Deed of Trust.
1.Payment of Principal and Interest.  Principal and interest under this Note shall be payable as follows:
(a)    Borrower shall pay interest only in advance on the Advance Date at the Interest Rate for the period from and including the Advance Date until the last day of the calendar month in which the Advance Date occurs
(b)    Except as set forth in subsection (d) below with respect to an occurrence of a Fixed Rate Note Accrual Event, commencing on the Interest Installment Date and thereafter on the first day of each calendar month, to and including the first day of the calendar month immediately preceding the Maturity Date, Borrower shall pay the Monthly Installment.
(c)    A portion of the outstanding principal balance under this Note shall be prepaid at any time a Cash Flow Prepayment Event occurs.
(d)    Notwithstanding anything in subsection (b) above to the contrary, in the event that a Fixed Rate Note Accrual Event occurs (as determined by Holder in its sole discretion in accordance with the terms of the Restricted Account Agreement) and all or a portion of the Monthly Installment is not paid when due, the Fixed Rate Accrual for such month (as defined in Section 4(d)(ii) of the Restricted Account Agreement) shall be added to the outstanding principal balance of the Note. Interest on the Fixed Rate Note Accrual Amount shall accrue at the Interest Rate and be compounded monthly. Notwithstanding the foregoing, (x) in no event shall the Fixed Rate Note Accrual Amount exceed an aggregate of $4,000,000 during the term of the Loan and (y) in no event shall an aggregate of more than 24 months of payments or partial payments under this Note be accrued. 
(e)    On the Maturity Date, a final payment in the aggregate amount of the unpaid principal sum evidenced by this Note, all accrued and unpaid interest, and all other sums evidenced by this Note or secured by the Deed of Trust and/or any other Loan Documents as well as any future advances under the Deed of Trust that may be made to or on behalf of Borrower by Holder following the Advance Date (collectively, the “Secured Indebtedness”), shall become immediately payable in full.
(f)    Borrower acknowledges and agrees that a substantial portion of the original Loan Amount shall be outstanding and due on the Maturity Date.

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(g)    Interest shall be calculated on the basis of a thirty (30) day month and a three hundred sixty (360) day year, except that (i) if the Advance Date occurs on a date other than the first day of a calendar month, interest payable for the period commencing on the Advance Date and ending on the last day of the month in which the Advance Date occurs shall be calculated on the basis of the actual number of days elapsed over a three hundred sixty-five (365) day or three hundred sixty-six (366) day year, as applicable, and (ii) if the Maturity Date occurs on a date other than the last day of the month, interest payable for the period commencing on the first day of the month in which the Maturity Date occurs and ending on the Maturity Date shall be calculated on the basis of the actual number of days elapsed over a three hundred sixty-five (365) day or three hundred sixty-six (366) day year, as applicable. 
2.    Application of Payments.  At the election of Holder, and to the extent permitted by law, all payments shall be applied in the order selected by Holder to any expenses, prepayment fees, late charges, escrow deposits and other sums due and payable under the Loan Documents, and to unpaid interest at the Interest Rate or at the Default Rate, as applicable.  The balance of any payments shall be applied to reduce the then unpaid Loan Amount.
3.    Security.  The covenants of the Deed of Trust are incorporated by reference into this Note.  This Note shall evidence, and the Deed of Trust shall secure, the Secured Indebtedness. The Deed of Trust also secures the Floating Rate Note.
4.    Late Charge.  If any payment of interest, any payment of a Monthly Installment or any payment of a required escrow deposit is not paid within 7 days after the due date (except as otherwise provide in Section 1(d) of this Note), Holder shall have the option to charge Borrower the Late Charge.  The Late Charge is for the purpose of defraying the expenses incurred in connection with handling and processing delinquent payments and is payable in addition to any other remedy Holder may have.  Unpaid Late Charges shall become part of the Secured Indebtedness and shall be added to any subsequent payments due under the Loan Documents.
5.    Acceleration Upon Default.  At the option of Holder, if Borrower fails to pay any sum specified in this Note within 7 days of the due date, or if an Event of Default occurs, the Secured Indebtedness, and all other sums evidenced and/or secured by the Loan Documents, including without limitation the Default Prepayment Fee (as defined in Section 9(b) below), (collectively, the “Accelerated Loan Amount”) shall become immediately due and payable.
6.    Interest Upon Default.  The Accelerated Loan Amount shall bear interest at the Default Rate which shall never exceed the maximum rate of interest permitted to be contracted for under the laws of the State.  The Default Rate shall commence upon the occurrence of an Event of Default and shall continue until all defaults are cured.
7.    Limitation on Interest.  The agreements made by Borrower with respect to this Note and the other Loan Documents are expressly limited so that in no event shall the amount of interest received, charged or contracted for by Holder exceed the highest lawful amount of interest permissible under the laws applicable to the Loan. If at any time performance of any provision of this Note or the other Loan Documents results in the highest lawful rate of interest permissible under applicable laws being exceeded, then the amount of interest received, charged or contracted 

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for by Holder shall automatically and without further action by any party be deemed to have been reduced to the highest lawful amount of interest then permissible under applicable laws.  If Holder shall ever receive, charge or contract for, as interest, an amount which is unlawful, at Holder's election, the amount of unlawful interest shall be refunded to Borrower (if actually paid) or applied to reduce the then unpaid Loan Amount.  To the fullest extent permitted by applicable laws, any amounts contracted for, charged or received under the Loan Documents included for the purpose of determining whether the Interest Rate would exceed the highest lawful rate shall be calculated by allocating and spreading such interest to and over the full stated term of this Note.
8.    Prepayment.
(a)    At any time Borrower prepays the Floating Rate Note in whole or in part, the Note shall be prepaid, in whole and not in part .
(b)    The Note must be prepaid at any time a Cash Flow Prepayment Event occurs.
(c)    Except as set forth in Section 8(a) and (b) above, Borrower shall have the right but not the obligation to prepay all or any portion of the Loan Amount at any time after the first day of the first month after the Advance Date on no less than 30 days’ prior written notice to Holder (“Prepayment Notice”).  If Borrower provides notice of its intention to prepay, the Secured Indebtedness shall become due and payable on the date specified in the Prepayment Notice; provided, however, Borrower shall have the right two (2) times during the term of the Loan to rescind or extend a Prepayment Notice, provided that Borrower (x) provides Holder with not less than 5 (five) days prior written notice of such extension or rescission and (y) reimburses Holder for any out of pocket costs (but specifically excluding any arising from any missed reinvestment opportunity) incurred by Holder as a result of Borrower’s original notice of intention to prepay the Loan.
(d)    There shall not be any prepayment fee in the event the Note is prepaid under this Section 8. 
9.    Default Prepayment.
(a)    Any tender of payment by Borrower or any other person or entity of the Secured Indebtedness, other than as expressly provided in the Loan Documents, shall constitute a prohibited prepayment. If a prepayment of all or any part of the Secured Indebtedness is made following (i) an Event of Default and an acceleration of the Maturity Date, (ii) the application of money to the principal of the Loan after a casualty or condemnation, or (iii) in connection with a purchase of the Property or a repayment of the Secured Indebtedness at any time before, during or after, a judicial or non-judicial foreclosure or sale of the Property, then to compensate Holder for the loss of the investment, Borrower shall pay an amount equal to the Default Prepayment Fee (as hereinafter defined in 9(b) below).  Notwithstanding the foregoing, so long as Borrower makes a good faith effort to recover any Default Prepayment Fee which would be due as a result of a casualty or condemnation, from the insurer in the case of a casualty or from the condemning authority, then the Default Prepayment Fee due as a result of the casualty or condemnation shall be waived except to the extent recovered by Borrower.

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(b)    The “Default Prepayment Fee” shall be equal to (i) the greater of (x) the present value of all remaining Partial Monthly Payments of Interest (as defined below), discounted at the rate which, when compounded monthly, is equivalent to the Treasury Rate (as defined below), compounded semi-annually, or (y) one percent (1%) of the amount of the principal being prepaid.
(i)    A “Partial Monthly Payment of Interest” shall be defined as the outstanding principal balance of the Note multiplied by the Interest Rate, divided by 360, multiplied by 365 or 366 days as applicable, and divided by 12.  The number of “remaining” Partial Monthly Payments of Interest to be used in the calculation of the Default Prepayment Fee shall be equal to the number of remaining monthly installments of interest due on the Loan to and including the Maturity Date.
(ii)    The “Treasury Rate” shall be the annualized yield on securities issued by the United States Treasury having a maturity equal to the remaining stated term of this Note, as quoted in the Federal Reserve Statistical Release [H. 15 (519)] under the heading “U.S. Government Securities - Treasury Constant Maturities” for the date on which prepayment is being made.  If this rate is not available as of the date of prepayment, the Treasury Rate shall be determined by interpolating between the yield on securities of the next longer and next shorter maturity. If the Treasury Rate is no longer published, Holder shall select a comparable rate. Holder will, upon request, provide an estimate of the amount of the Default Prepayment Fee two weeks before the date of the scheduled prepayment.  A “Business Day” shall mean a day that both (x) commercial banks in London are open for international business (including dealings in dollar deposits) and (y) Holder is open for business in New York City.
10.    Waiver of Right to Prepay Note Without Default Prepayment Fee.  Borrower acknowledges that Holder has relied upon the anticipated investment return under this Note in entering into transactions with, and in making commitments to, third parties and that the tender of any prohibited prepayment or any permitted prepayment which pursuant to the terms of this Note requires a Default Prepayment Fee, shall include the Default Prepayment Fee.  Borrower agrees that the determination of the Interest Rate was based on the expectation and agreement (and the Interest Rate would have been higher without such agreement) of Borrower and Holder that the amounts advanced under this Note would not be prepaid during the term of this Note, or if any such prepayment occurs, the Default Prepayment Fee would apply (except as expressly permitted by the terms of this Note.  Borrower also agrees that the Default Prepayment Fee represents the reasonable estimate of Holder and Borrower of a fair average compensation for the loss that may be sustained by Holder as a result of a prepayment of this Note and it shall be paid without prejudice to the right of Holder to collect any other amounts provided to be paid under the Loan Documents.
BORROWER EXPRESSLY (A) WAIVES ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT FEE OR PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE, AND (B) AGREES THAT IF, FOR ANY REASON, A PREPAYMENT OF THIS NOTE IS MADE, UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF THIS NOTE BY HOLDER ON ACCOUNT OF ANY DEFAULT BY BORROWER UNDER ANY LOAN DOCUMENT, 

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INCLUDING BUT NOT LIMITED TO ANY TRANSFER, FURTHER ENCUMBRANCE OR DISPOSITION WHICH IS PROHIBITED OR RESTRICTED BY THE DEED OF TRUST, THEN BORROWER SHALL BE OBLIGATED TO PAY CONCURRENTLY THE DEFAULT PREPAYMENT FEE SPECIFIED IN SECTION 9. BY INITIALING THIS PROVISION IN THE SPACE PROVIDED BELOW, BORROWER AGREES THAT HOLDER'S AGREEMENT TO MAKE THE LOAN AT THE INTEREST RATE AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION FOR THIS WAIVER AND AGREEMENT.
BORROWER’S INITIALS:  ________
11.    Exculpation of Borrower.
(a)    Except as provided in the Deed of Trust,  this Section 11, Section 11 of the Floating Rate Note or in the Indemnity Agreement or Guaranty, anything contained herein or in any other Loan Documents to the contrary notwithstanding, Holder will look solely to the Property and the security granted by the Deed of Trust as security for the repayment of the Loan and will not enforce a deficiency judgment against Borrower.
(b)    However, nothing contained in this Section shall limit the rights of Holder to proceed against Borrower and the general partners of Borrower and/or the Liable Party, if any, (i) to enforce any leases entered into by Borrower or its affiliates as tenant; (ii) to recover damages for fraud, material misrepresentation, material breach of warranty or waste; (iii) to recover any Condemnation Proceeds or Insurance Proceeds or other similar funds which have been misapplied by Borrower or which, under the terms of the Loan Documents, should have been paid to Holder; (iv) to recover any tenant security deposits, tenant letters of credit or other deposits or fees paid to Borrower or prepaid rents for a period of more than 30 days; (v) to recover Rents and Profits received by Borrower after the first day of the month in which an Event of Default occurs and prior to the date Holder acquires title to the Property which have not been applied to the Loan or in accordance with the Loan Documents to operating and maintenance expenses of the Property; (vi) to recover damages, costs and expenses arising from, or in connection with, the provisions of the Deed of Trust pertaining to hazardous materials or the Indemnity Agreement; (vii) to recover all amounts due and payable pursuant to Sections 11.6 and 11.7 of the Deed of Trust and any amount expended by Holder in connection with the foreclosure of the Deed of Trust; (viii) to recover costs and damages arising from Borrower’s failure to pay any Premiums or Impositions in the event Borrower is not required to deposit such amounts with Holder pursuant to the terms of the Deed of Trust; (ix) to recover damages arising from Borrower’s failure to comply with the provisions of the Deed of Trust pertaining to ERISA; (x) to recover any damages, costs, expenses or liabilities, including attorneys' fees, incurred by Holder and arising from any breach or enforcement of any "environmental provision" (as defined in California Code of Civil Procedure Section 736, as such Section may be amended from time to time) relating to the Property or any portion thereof; and/or (xi) in accordance with California Code of Civil Procedure Section 726.5, as such Section may be amended from time to time, limit the right of Holder to waive the security of the Deed of Trust as to any parcel of Real Property that is "environmentally impaired" or is an "affected parcel" (as such terms are defined in such Section), and as to any Personal Property attached to such parcel, and thereafter to exercise 

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against Borrower, to the extent permitted by such Section 726.5, the rights and remedies of an unsecured creditor, including reduction of Holder's claim against Borrower to judgment, and any other rights and remedies permitted by law.  If Holder exercises the rights and remedies of an unsecured creditor in accordance with clause (xi) above, Borrower promises to pay to Holder, on demand by Holder following such exercise, all amounts owed to Holder under any Loan Document, and Borrower agrees that it and the Liable Party, if any, will be personally liable for the payment of all such sums.  In the event that Borrower fails to maintain or replace the Rate Cap Agreement as and when required under the Deed of Trust or under the terms of the Interest Rate Cap Assignment, Borrower shall be liable on a recourse basis for all damages, costs, expenses, or liabilities (including attorneys’ fees) that Holder may incur as a result of such failure  
(c)    This limitation of liability shall not apply and the Loan will be a recourse loan in the event that Borrower commences a voluntary bankruptcy or insolvency proceeding or an involuntary bankruptcy or insolvency proceeding is commenced against Borrower and is not dismissed within 90 days of filing.  Notwithstanding the previous sentence, neither Borrower nor Liable Party shall be personally liable for payment of the Loan merely by reason of an involuntary bankruptcy (irrespective of its duration) as to which the following conditions are satisfied (1) such involuntary bankruptcy is not solicited, procured or supported by Borrower or any Related Person (defined below); (2) there is no debt or other obligation and there are no creditors, in any case which are prohibited by the Loan Documents; (3) Borrower and each Related Person in such involuntary bankruptcy proceeding will consent to and support and perform all actions requested by Holder to obtain relief from the automatic stay and to obtain adequate protection for Holder; (4) none of the Borrower nor any Related Persons shall propose or in any way support any plan of reorganization which in any way modifies or seeks to modify any provisions of the Loan Documents or any of Holder's rights under the Loan Documents; and (5) none of Borrower nor any Related Persons shall propose or consent to any use of cash collateral except with Holder's consent, which may be withheld in Holder's sole discretion.  As used herein, a "Related Person" shall mean (a) any guarantor or other person or entity which is liable in any way (including contingently liable) for any part of the Loan, (b) any person or entity which has any direct or indirect interest in Borrower or in which Borrower has any direct or indirect interest, or (c) any person who, by reason of any relationship with any of the foregoing, would be reasonably expected to act in accordance with the request of any of the foregoing.
(d)    Notwithstanding the foregoing, the Loan shall be recourse to Borrower and the Liable Party in the event there is a Transfer or Secondary Financing except as permitted in the Loan Documents or as otherwise approved in writing by Holder.
(e)    Notwithstanding the foregoing, Holder agrees that its sole recourse against the Operating Lessee for Operating Lessee’s obligations hereunder or under the other Loan Documents shall be to the collateral owned by Operating Lessee and pledged to Holder pursuant to the terms of the Loan Documents;  provided however, the foregoing shall not limit Holder’s rights against Borrower and/or Liable Party with respect to the obligations of Operating Lessee to the extent otherwise permitted under the Loan Documents.

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12.    Waiver by Borrower.  Borrower and others who may become liable for the payment of all or any part of this Note, and each of them, waive diligence, demand, presentment for payment, notice of nonpayment, protest, notice of dishonor and notice of protest, notice of intent to accelerate and notice of acceleration and specifically consent to and waive notice of any amendments, modifications, renewals or extensions of this Note, including the granting of extension of time for payment, whether made to or in favor of Borrower or any other person or persons.
13.    Exercise of Rights.  No single or partial exercise by Holder, or delay or omission in the exercise by Holder, of any right or remedy under the Loan Documents shall waive or limit the exercise of any such right or remedy.  Holder shall at all times have the right to proceed against any portion of or interest in the Property in the manner that Holder may deem appropriate, without waiving any other rights or remedies.  The release of any party under this Note shall not operate to release any other party which is liable under this Note and/or under the other Loan Documents or under the Indemnity Agreement.
14.    Fees and Expenses.  If Borrower defaults under this Note, Borrower shall be personally liable for and shall pay to Holder, in addition to the sums stated above, the costs and expenses of enforcement and collection, including a reasonable sum as an attorney's fee. This obligation is not limited by Section 11.
15.    No Amendments.  This Note may not be modified or amended except in a writing executed by Borrower and Holder.  No waivers shall be effective unless they are set forth in a writing signed by the party which is waiving a right. This Note and the other Loan Documents are the final expression of the lending relationship between Borrower and Holder, and there is no unwritten agreement with respect to the subject matter of the Loan.
16.    Governing Law.  This Note is to be construed and enforced in accordance with the laws of California.
17.    Construction.  The words “Borrower” and “Holder” shall be deemed to include their respective heirs, representatives, successors and assigns, and shall denote the singular and/or plural, and the masculine and/or feminine, and natural and/or artificial persons, as appropriate.  The provisions of this Note shall remain in full force and effect notwithstanding any changes in the shareholders, partners or members of Borrower.  If more than one party is Borrower, the obligations of each party shall be joint and several.  The captions in this Note are inserted only for convenience of reference and do not expand, limit or define the scope or intent of any section of this Note.
18.    Notices.  All notices, demands, requests and consents permitted or required under this Note shall be given in the manner prescribed in the Deed of Trust.
19.    Time of the Essence.  Time shall be of the essence with respect to all of Borrower's obligations under this Note.
20.    Severability.  If any provision of this Note should be held unenforceable or void, then that provision shall be deemed separable from the remaining provisions and shall not affect the validity of this Note, except that if that provision relates to the payment of any monetary sum, 

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then Holder may, at its option, declare the Secured Indebtedness (together with the Default Prepayment Fee) immediately due and payable.
[Signature on Following Page]

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IN WITNESS WHEREOF, Borrower has executed this Note as of the Execution Date.
NEW AVENTINE, L.L.C.,
a Delaware limited liability company
By:    /s/ Jonathan P. Stanner
Name:    Jonathan P. Stanner
Its:      Vice President, Capital Markets & Treasurer

S-1MOH-12.31.2012-10K Ex10.16

EXHIBIT 10.16

CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (the “Agreement”) is entered into as of September 18, 2012, (the “Effective Date”), by and between Jeff Barlow (the “Executive”) and Molina Healthcare, Inc., a Delaware corporation (the “Company”).
RECITALS
1. Definitions.  The following definitions shall apply for all purposes under this Agreement:
(a)     Annual Base Salary.  “Annual Base Salary” shall mean the Executive’s annualized fiscal year base salary (as paid in accordance with the Company’s regular payroll practices) as in effect on the date of Executive’s Separation from Service (or if Executive’s salary was greater, on the date of the Announcement (as such term is defined below)).
(b)     Change in Control.  “Change in Control” means the occurrence of any of the following events after the Effective Date:
(i)     The acquisition (other than by an Excluded Person), directly or indirectly, in one or more transactions, by any person or by any group of persons, within the meaning of Section 13(d) or 14(d) of the Exchange Act, of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of more than fifty percent (50%) of either the outstanding shares of common stock or the combined voting power of the Company’s outstanding voting securities entitled to vote generally, whether or not the acquisition was previously approved by the existing directors, other than an acquisition that complies with clause (x) and (y) of paragraph (ii);
(ii)     Consummation of a reorganization, merger, or consolidation of the Company or the sale or other disposition of all or substantially all of the Company’s assets unless, immediately following such event, (x) all or substantially all of the stockholders of the Company immediately prior to such event own, directly or indirectly, more than fifty percent (50%) of the then outstanding voting securities of the resulting corporation (including without limitation, a corporation which as a result of such event owns the Company or all or substantially all of the Company’s assets either directly or indirectly through one or more subsidiaries) and (y) the securities of the surviving or resulting corporation received or retained by the stockholders of the Company are publicly traded;
(iii)     Approval by the stockholders of the complete liquidation or dissolution of the Company; or
(iv)     A change in the composition of a majority of the directors on the Company’s Board of Directors within 12 months if not approved by a majority of the pre-existing directors. 
A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
(c) Excluded Person.  “Excluded Person” means:

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EXHIBIT 10.16

(i)     Any person described in and satisfying the conditions of Rule 13d-1(b)(1) under the Exchange Act;
(ii) The Company;
(iii)     An employee benefit plan (or related trust) sponsored or maintained by the Company or its successor;
(iv)     Any person who is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more than 15% of the Common Stock on the Effective Date (or any affiliate, successor, heir, descendant, or related party of or to such person).
(d)     Good Reason.  “Good Reason” shall mean that, on or after the effective date of a Change in Control, the Executive (without Executive’s written consent):
(i)     Has incurred a material reduction in his authority or responsibility with the Company in comparison to the Executive’s authority or responsibility prior to the public announcement of the Change in Control (the “Announcement”);
(ii)     Has incurred one or more reductions in his “total compensation” with the Company which is defined as follows:
(A)     A material reduction in Annual Base Salary, or
            (B)     A material reduction in the target annual bonus percentage of Annual Base Salary; or 
(iii)     A material change in the geographic location of the Executive’s principal office with the Company.
(iv)     The Executive gives to the Company written notice of the event in clause (i), (ii), or (iii) giving rise to Good Reason within ninety (90) days of the initial existence of such event and the Company has not cured the event giving rise to Good Reason within thirty (30) days of receipt of written notification by Executive and the Executive resigns from employment with the Company within sixty (60) days following the end of the cure period.
(e)      Cause.  “Cause” includes any of the following committed by Executive (or omitted to be done by Executive) that occur on or after the Effective Date:
(i)     Theft, unlawful acts involving moral turpitude, or fraud with respect to any aspect of the Company’s business;
(ii)     Neglect of or failure to perform employment duties;
(iii) Insubordination;
(iv)     Abuse of alcohol or other drugs or substances;
(v)     A conviction of or plea of “guilty” or “no contest” to a felony under the laws of the United States or any state thereof (or admission or confession with respect thereto); 

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EXHIBIT 10.16

(vi)     Any violation or breach of any Company policy that has been established to comply with either the Sarbanes-Oxley Act of 2002 (or any regulations or rules or decisions that implement/interpret such Act) or any laws, rules, or requirements of the Securities and Exchange Commission or the New York Stock Exchange; 
(vii) Conduct on the part of Executive that constitutes a breach of any fiduciary duty or duty of loyalty owed to the Company or its affiliates by Executive; or
(viii)     Breach of this Agreement; provided, however, that any such breach or violation of Sections 1(e)(ii), (iii), (iv), or (viii) hereof shall not constitute Cause unless it is (A) not reasonably curable or (B) if reasonably curable, is not cured by the Executive within thirty (30) days notice from the Company.  
(f)     Total Disability.  “Total Disability” shall be deemed to occur on the ninetieth (90th) consecutive or non-consecutive calendar day within any twelve (12) month period that Executive is unable to perform his duties because of any physical or mental illness or disability.
(g)     Target Bonus.  “Target Bonus” shall mean the Executive’s fiscal year target bonus opportunity.
2. Severance Payment and Equity Compensation.
(a)     The Executive shall be entitled to receive a severance payment from the Company as provided herein (the “Severance Payment”) if the Executive has a Separation of Service within the first twelve (12) month period after the occurrence of a Change in Control, by reason of either:
(i)     The Executive’s voluntary resignation of his employment with the Company for Good Reason pursuant to Section 1(d); or
(ii)     The Company’s discharge of the Executive from employment with the Company for any reason other than Cause, death, or Total Disability.
For all purposes under this Agreement, the amount of the Severance Payment shall be equal to two times (2X) the Annual Base Salary, plus a pro rata portion of the Executive’s Target Bonus for the year in which Executive’s employment is terminated based on the number of entire months of such year that have elapsed through the date of Executive’s termination of employment as a fraction of twelve (12), plus a cash payment of $50,000 for all Company group health benefits.  The Severance Payment shall be distributable upon Executive’s Separation from Service as follows:
(iii)     the portion thereof that does not exceed the Exemption Limit shall satisfy the involuntary separation pay exemption under Treasury Regulation Section 1.409A-1(b)(9)(iii), shall be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and shall be paid in a lump sum payment within the ten (10) day period commencing on the 60th day after the date of Executive’s Separation from Service, and
(iv)     the remaining portion (if any) shall be subject to and shall comply with Section 409A of the Code and shall be paid in a lump sum payment within the ten (10) day period commencing on the 60th day after the date of the Executive’s Separation from Service; provided, however, that, if Executive is a Specified Employee on the date of the Executive’s Separation from S

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ervice, such payment shall be paid within the ten (10) day period following the earlier of (x) the expiration of the six (6) month period commencing on the date of the Executive’s Separation from Service and (y) the date of Executive’s death.
Except as may be provided under Sections 2(b) and 2(c), the Severance Payment shall be in lieu of any other post-termination employment payments.
(b)     Incentive, Deferred Compensation, and Retirement Programs.  If the Executive is entitled to a Severance Payment under Section 2(a) and notwithstanding anything to the contrary in any equity incentive, stock option, stock appreciation right (SAR), or deferred compensation plan or retirement plan or agreements, then (i) the Executive shall become immediately fully vested in all of his outstanding restricted stock, stock options, SARs, warrants, phantom stock, deferred compensation, retirement, or similar plans or agreements of the Company, and (ii) the Executive (or his personal representative if applicable) shall be permitted to exercise any of his vested stock options/SARs until the earlier of: (i) one (1) year after Executive’s termination of employment, and (ii) the term of such unexercised stock options, warrants, or SARs.
(c)     Mitigation.  Except as may be expressly provided elsewhere in this Agreement, the Executive shall not be required to mitigate the amount of any payment or benefit contemplated by this Section 2 (whether by seeking new employment or in any other manner).  No such payment shall be reduced by earnings that the Executive may receive from any other source.
(d)     Conditions.  All payments and benefits provided under this Section 2 are conditioned on Executive’s continuing compliance with this Agreement and the Company’s policies.  All payments and benefits are also conditioned on, and in consideration for, Executive’s execution (and effectiveness) of a release of claims and covenant not to sue substantially in the form provided in Exhibit A to be delivered by Executive no later than sixty (60) days following the Executive’s Separation of Service, any revocation period required by law has run, and Executive has not revoked the release of claims and covenant not to sue.
3. Limitation on Payments.
(a)     Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution made, or benefit provided, by the Company to or for the benefit of the Executive under this Agreement or any other agreement between the Company and the Executive or plan of the Company would constitute a “parachute payment” as defined in Section 280G of the Code, then the benefits payable pursuant to this Agreement shall be reduced so that the aggregate present value of all payments in the nature of compensation to (or for the benefit of) the Executive which are contingent on a change of control (as defined in Section 280G(b)(2)(A) of the Code) is One Dollar ($1.00) less than the amount which the Executive could receive without being considered to have received any parachute payment (the amount of this reduction in the benefits payable is referred to herein as the “Excess Amount”).  The determination of the amount of any reduction required by this Section 3(a) shall be made by a nationally recognized tax counsel selected by the Company, and such determination shall be conclusive and binding on the parties hereto.  
(b)     Notwithstanding the provisions of Section 3(a), if it is established, pursuant to a final determination of a court or an Internal Revenue Service proceeding which has been finally

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 and conclusively resolved, that an Excess Amount was received by the Executive from the Company, then such Excess Amount shall be deemed for all purposes to be a loan to the Executive made on the date the Executive received the Excess Amount and the Executive shall repay the Excess Amount to the Company on demand (but no less than ten (10) days after written demand is received by the Executive) together with interest on the Excess Amount at the “applicable Federal rate” (as defined in Section 1274(d) of the Code) from the date of the Executive’s receipt of such Excess Amount until the date of such repayment.  
4. Successors.
(a)     Company’s Successors.  Any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation, or otherwise) to all or substantially all of the Company’s business and/or assets, shall be obligated to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession.
(b)     Executive’s Successors.  This Agreement and all rights of the Executive hereunder shall inure to the benefit of, and be enforceable by, the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees.
5. Miscellaneous Provisions.
(a)     Notice.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S.  registered or certified mail, return receipt requested and postage prepaid.  In the case of the Executive, mailed notices shall be addressed to him or her at the home address which he most recently communicated to the Company in writing.  In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
(b)     Waiver.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Executive and by an authorized officer of the Company (other than the Executive).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.
(c)     Whole Agreement.  This Agreement contains all the legally binding understandings and agreements between Executive and the Company pertaining to the subject matter of this Agreement and supersedes all such agreements, whether oral or in writing, previously entered into between the parties.
(d)     Withholding Taxes.  All payments made under this Agreement shall be subject to reduction to reflect taxes required to be withheld by law.
(e)     Choice of Law.  The validity, interpretation, construction, and performance of this Agreement shall be governed by the laws of the State of California without regard to the conflicts of laws principles thereof.

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(f)     Severability.  The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(g)     No Assignment.  The rights of Executive to payments or benefits under this Agreement shall not be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, and any action in violation of this Subsection (h) shall be void.
(h)     Nondisparagement; Confidentiality.  On the Effective Date and thereafter, Executive agrees that he will not disparage the Company or its directors, officers, employees, affiliates, subsidiaries, predecessors, successors or assigns in any written or oral communications to any third party.  Executive further agrees that he will not direct anyone to make any disparaging oral or written remarks to any third parties.  During Executive’s employment and following Executive’s termination of employment for any reason, Executive agrees to not use or disclose the confidential information or trade secrets of the Company.
(i)     Nonsolicitation.  During the Executive’s employment with Company and for twelve months after Executive’s termination of employment and payment of the Severance Payment hereunder, the Executive shall not, directly or indirectly, either as an individual or as an employee, agent, consultant, advisor, independent contractor, general partner, officer, director, stockholder, investor, lender, or in any other capacity whatsoever, of any person, firm, corporation, or partnership, (i) induce or attempt to induce, or hire, any person who at the time of such inducement or hire is an employee of the Company (or who was, within six months prior to such inducement or hire, an employee) to perform work or service for any other person or entity other than the Company or (ii) through the use of confidential information or trade secrets, solicit customers, suppliers, or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity.
(j)     Unfunded and Unsecured.  The obligations of the Company under this Agreement shall be unfunded and unsecured.  With respect to any payments to which the Executive has a fixed and vested interest but that have not yet been made by the Company, nothing contained herein shall give the Executive any rights that are greater than those of a general unsecured creditor of the Company.
(k)     Exhibit B.  Exhibit B hereto regarding Code Section 409A is incorporated herein by this reference.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written.
EXECUTIVE:
    

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EXHIBIT 10.16

 
Jeff Barlow
MOLINA HEALTHCARE, INC.:
 
By:     Joseph M.  Molina, M.D. 
Its:     President and Chief Executive Officer

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EXHIBIT 10.16

EXHIBIT A
Form of Release of Claims and Covenant Not To Sue
In consideration of the payments and other benefits that Molina Healthcare, Inc., a Delaware corporation (the “Company”), is providing to Jeff Barlow (“Executive”) under the Change in Control Agreement entered into by and between Executive and the Company, dated September 18, 2012, the Executive, on his own behalf and on behalf of Employee’s representatives, agents, heirs and assigns, waives, releases, discharges and promises never to assert any and all claims, demands, actions, costs, rights, liabilities, damages or obligations of every kind and nature, whether known or unknown, suspected or unsuspected that Executive ever had, now have or might have as of the date of Executive’s termination of employment with the Company against the Company or its predecessors, parent, affiliates, subsidiaries, stockholders, owners, directors, officers, employees, agents, attorneys, insurers, successors, or assigns (including all such persons or entities that have a current and/or former relationship with the Company) for any claims arising from or related to Executive’s employment with the Company, its parent or any of its affiliates and subsidiaries and the termination of that employment.
These released claims also specifically include, but are not limited to, any claims arising under any federal, state and local statutory or common law, such as (as amended and as applicable) Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Employee Retirement Income Security Act, the Family Medical Leave Act, the Equal Pay Act, the Fair Labor Standards Act, the Industrial Welfare Commission’s Orders, the California Fair Employment and Housing Act, the California Constitution, the California Government Code, the California Labor Code and any other federal, state or local constitution, law, regulation or ordinance governing the terms and conditions of employment or the termination of employment, and the law of contract and tort and any claim for attorneys’ fees.
Furthermore, the Executive acknowledges that this waiver and release is knowing and voluntary and that the consideration given for this waiver and release is in addition to anything of value to which Executive was already entitled.  Executive acknowledges that there may exist facts or claims in addition to or different from those which are now known or believed by Executive to exist.  Nonetheless, this Agreement extends to all claims of every nature and kind whatsoever, whether known or unknown, suspected or unsuspected, past or present.  Executive also expressly waives the provisions of California Civil Code section 1542, which provides: “A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him/her must have materially affected his settlement with the debtor.” With respect to the claims released in the preceding sentences, the Executive will not initiate or maintain any legal action or proceeding of any kind against the Company or its predecessors, parent, affiliates, subsidiaries, stockholders, owners, directors, officers, employees, agents, successors, or assigns (including all such persons or entities that have a current or former relationship with the Company), for the purpose of obtaining any personal relief, nor assist or participate in any such proceedings, including any proceedings brought by any third parties (except as otherwise required or permitted by law).  The Executive further acknowledges that he has been advised by this writing that:

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EXHIBIT 10.16

		
	•
	he should consult with an attorney prior to executing this release;

		
	•
	he has at least twenty-one (21) days within which to consider this release;

		
	•
	he has up to seven (7) days following the execution of this release by the parties to revoke the release; and

		
	•
	this release shall not be effective until such seven (7) day revocation period has expired.

Executive agrees that the release set forth above shall be and remain in effect in all respects as a complete general release as to the matters released.
EXECUTIVE

______________________
 
Jeff Barlow 

Date:

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EXHIBIT 10.16

Exhibit B
SECTION 409A PROVISIONS
1.    EXEMPTION FROM AND COMPLIANCE WITH SECTION 409A OF THE CODE
a.    ADMINISTRATION OF AGREEMENT.  Certain payments and benefits payable under the Agreement are intended to be exempt from, or comply with, the requirements of Section 409A of the Code.  The Agreement shall be interpreted in accordance with the applicable exemptions from Section 409A of the Code and the Treasury Regulations thereunder.  To the extent the payments and benefits under the Agreement are subject to Section 409A of the Code, the Agreement shall be interpreted, construed and administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the Code and the Treasury Regulations and interpretive guidance issued thereunder.  If the Company and Executive determine that any compensation, benefits or other payments that are payable under the Agreement and intended to comply with Sections 409A(a)(2), (3) and (4) of the Code do not comply with Section 409A of the Code, the Treasury Regulations and interpretive guidance issued thereunder, the Company and Executive agree to amend the Agreement, or take such other actions as the Company and Executive deem reasonably necessary or appropriate, to comply with the requirements of Section 409A of the Code, the Treasury Regulations and interpretive guidance issued thereunder.  In the case of any compensation, benefits or other payments that are payable under the Agreement and intended to comply with Sections 409A (a)(2), (3) and (4) of the Code, if any provision of the Agreement would cause such compensation, benefits or other payments to fail to so comply, such provision shall not be effective and shall be null and void with respect to such compensation, benefits or other payments, and such provision shall otherwise remain in full force and effect.
b.    DELAYED DISTRIBUTION UNDER SECTION 409A OF THE CODE.  If Executive is a Specified Employee on the date of Executive’s Separation from Service, any payments or benefits under the Agreement that are subject to Section 409A of the Code shall be delayed in order to comply with Section 409A(a)(2)(B)(i) of the Code, and such payments or benefits shall be paid or distributed to Executive within the ten (10) day period following the earlier of (x) the expiration of the six (6) month period commencing on the date of Executive’s Separation from Service, or (y) the date of Executive’s death.
2.    DEFINITIONS
For purposes of this Agreement, the following capitalized terms have the meanings set forth below:
a.    The “Exemption Limit” shall mean the exemption limit set forth in Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) and shall equal two times the lesser of:
(i)    the amount of Executive’s annualized compensation based upon the Executive’s annual rate of pay for the calendar year immediately preceding the calendar year in which Executive’s Separation from Service occurs (adjusted for any increase during the calendar year in which such Separation from Service occurs that would be expected to continue indefinitely had Executive remained employed with the Company), or

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EXHIBIT 10.16

(ii)    the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for the calendar year in which Executive’s Separation from Service occurs (the Section 401(a)(17) annual compensation limit for 2012 is $250,000).
b.    “Separation from Service”, with respect to Executive (or another Service Provider), means Executive’s (or such Service Provider’s) “separation from service,” as defined in Treasury Regulation Section 1.409A-1(h), with respect to the Service Recipient.
c.    “Service Provider” means Executive or any other “service provider,” as defined in Treasury Regulation Section 1.409A-1(f).
d.    “Service Recipient,” with respect to Executive, means Molina Healthcare, Inc.  or the subsidiary of Molina Healthcare, Inc.  employing the Executive, whichever is applicable, and all persons considered part of the “service recipient,” as defined in Treasury Regulation Section 1.409A-1(g), as determined from time to time.  As provided in Treasury Regulation Section 1.409A-1(g), the “Service Recipient” shall mean the person for whom the services are performed and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) or 414(c) of the Code.
e.     “Specified Employee” means a Service Provider who, as of the date of the Service Provider’s Separation from Service is a “Key Employee” of the Service Recipient any stock of which is publicly traded on an established securities market or otherwise.  For purposes of this definition, a Service Provider is a “Key Employee” if the Service Provider meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii) of the Code (applied in accordance with the Treasury Regulations thereunder and disregarding Section 416(i)(5) of the Code) at any time during the testing year.  If a Service Provider is a “Key Employee” (as defined above) as of a Specified Employee Identification Date, the Service Provider shall be treated as “Key Employee” for the entire twelve (12) month period beginning on the Specified Employee Effective Date.  The “Specified Employees” shall be determined in accordance with Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i).
f.     “Specified Employee Effective Date” means the first day of the fourth month following the Specified Employee Identification Date.  The Specified Employee Effective Date may be changed by Molina Healthcare, Inc., in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(4).
g.     “Specified Employee Identification Date”, for purposes of Treasury Regulation Section 1.409A-1(i)(3), shall mean December 31.  The “Specified Employee Identification Date” shall apply to all “nonqualified deferred compensation plans” (as defined in Treasury Regulation Section 1.409A-1(a)) of the Service Recipient and all affected Service Providers.  The “Specified Employee Identification Date” may be changed by Molina Healthcare, Inc., in its discretion, in accordance with Treasury Regulation Section 1.409A-1(i)(3).

2

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