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HEARTLAND FINANCIAL USA INC | B-Opportunities LLC | Federal Deposit Insurance Corporation | Federal Reserve System | Heartland Financial USA, Inc | Minnesota Bank. RealDealDocs™ contains millions of easily searchable legal documents and clauses from top law firms. Search for free - click here. |
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Exhibit
10.1
Subscription and Shareholder Agreement
This Subscription and Shareholder
Agreement (this “ Agreement
”) dated as of September 21, 2007, is among Heartland
Financial USA, Inc. , a Delaware corporation (the "
Company "), and those individuals or entities who
have signed this Agreement and whose subscriptions have been
accepted by the Company (individually referred to as an "
Investor " and collectively as the "
Investors ").
Recitals
A.
The
Company, certain Investors and B-Opportunities LLC entered
into that certain Agreement to Organize dated as of August 2,
2006 (the “ Initial Agreement”
), and relating to the evaluation of bank charter and
acquisition opportunities in the Minneapolis-St. Paul
metropolitan area ( “Market
Area” ).
B. The
Company and the Investors (collectively, the “
Organizers ”) desire to organize a new
bank under the laws of the State of Minnesota with its main
office to be located in the Market Area, to be known as
“Minnesota Bank & Trust” (the “
Bank ”).
C.
Pursuant
to the terms of this Agreement, the Organizers intend to provide
the initial capitalization of the Bank, to take all steps necessary
to obtain authorization for and prepare the Bank to engage in the
business of banking and to effect all of the other actions
contemplated by this Agreement (collectively, the
“ Transaction ”).
D.
The
Organizers understand that the Transaction requires the approval of
the Board of Governors of the Federal Reserve System (“
Federal Reserve ”), Minnesota Department of
Commerce (“ Commerce ”), and Federal
Deposit Insurance Corporation (“ FDIC
”).
E.
Upon
approval of the organization of the Bank, the Organizers will
cause the Bank to issue shares of its capital stock (“
Bank Stock ”) to each of the
Organizers in proportion to their aggregate investment in the
Bank’s organization and capitalization and as otherwise
provided in this Agreement.
F.
The
Organizers desire to impose certain restrictions on the sale,
transfer or other disposition of the Bank Stock owned by the
Organizers and to give the Company and the Investors the option to
purchase and sell the shares of Bank Stock owned by them under
certain circumstances specified in this Agreement.
Now, Therefore , in consideration of the
mutual covenants herein contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, each of
the Organizers, intending to be legally bound hereby, agrees as
follows:
Agreements
Article 1
Bank Organization and Stock Subscription
Section 1.1
Charter . The
Organizers agree to take all actions reasonably required to prepare
and file all regulatory applications, including, but not limited
to, applications with the Federal Reserve, Commerce and FDIC, and
to use their reasonable best efforts to obtain all approvals and
authorizations as may be deemed necessary or advisable to establish
and authorize the Bank to engage in the business of banking and
otherwise to effect the Transaction. The date the Bank
commences banking business with the public is referred to as the
“ Charter Date .” Each of
the undersigned authorizes John K. Schmidt, an executive officer of
the Company, or such other individual who may be chosen from time
to time by the Company, to serve as the undersigned’s lawful
agent in connection with the Transaction (the “
Agent ”), and further acknowledges
employment of Kate Kelly as the Bank’s proposed
president (the “ President ”)
effective July 9, 2007. The Agent and the President,
from and after the effective date of her employment, shall be
primarily responsible for: (a) preparing and filing all regulatory
applications deemed by them to be necessary to effect the
Transaction, including, but not limited to, applications with the
Federal Reserve, Commerce and FDIC (the “
Applications ”); (b) the preparation of all
related market studies, business plans, policies, procedures and
other documentation necessary to support the Applications; (c) the
selection of the Bank’s main office location; (d) the
identification and recruitment of the Bank’s senior
management team; and (e) the identification and engagement of
legal, accounting and other professionals to assist in the
preparation of the Applications and organization of the
Bank. The President shall be compensated in the manner
provided in the Offer of Employment from the Company to the
President (the “Employment Offer” ).
Each of the Organizers agrees to cooperate fully with the President
and the Agent in such efforts.
Section 1.2
Subscriptions for Bank Stock .
(a)
The
aggregate investment in the organization and initial capitalization
of the Bank shall be Sixteen Million Dollars ($16,000,000) and the
Bank’s initial capitalization shall be the amount of such
investment paid in as of the Charter Date, net of any pre-opening
and organizational expenses that may not be included in the
Bank’s capitalization (the “Initial
Capitalization” ) and shall be comprised of sixteen
thousand (16,000) shares with a par value of ten dollars ($10) per
share. The Organizers agree to the following
subscriptions for Bank Stock and to cause the Bank to accept the
same upon the completion of its formation:
(i)
the
Company agrees to subscribe for and purchase Twelve Thousand Eight
Hundred (12,800) shares of Bank Stock representing eighty percent
(80%) of the initial issuance of Bank Stock, for an aggregate
investment of Twelve Million Eight Hundred Thousand Dollars
($12,800,000); and
(ii)
the
Investors severally, and not jointly, agree to subscribe for and
purchase that number of shares of Bank Stock set forth on his, her
or its signature page to this Agreement, which shall not, in the
aggregate, exceed Three Thousand Two Hundred (3,200) shares of Bank
Stock or represent more than twenty percent (20%) of the initial
issuance of Bank Stock, for an aggregate investment of up to Three
Million Two Hundred Thousand Dollars ($3,200,000) (the “
Investor Subscription Pool ”). The
Organizers may reserve a portion of the Bank Stock in the Investor
Subscription Pool, to be allocated to Bank directors, senior
management and additional key investors, as further provided in
Section 2.3 of this Agreement. If, as a result of such allocation,
the entire aggregate investment amount will not be paid or earned
on or before the Charter Date, then the number of shares initially
issued from the Investor Subscription Pool may be reduced as
necessary and the un-issued portion of such shares shall be issued
by the Bank as and when paid for or earned.
(b)
Except
as provided below in this Section
1.2(b) , payment by an Organizer of the aggregate cash
amount for the Organizer’s subscription for Bank Stock (the
“ Subscription Amount ”) shall be made
in two installments, with the first installment in an amount equal
to ten percent (10%) of the Organizer’s aggregate
Subscription Amount (the “ First Installment
”), and the second installment equal to the balance of the
Organizer’s Subscription Amount (the “ Second
Installment ”). Each of the Organizers
irrevocably agrees to deliver to the Agent either cash, or check(s)
made payable to “Minnesota Bank & Trust – Escrow
Account”:
(i)
In
the amount of the Organizer’s First Installment concurrently
with the date of each Organizer’s execution of this
Agreement; and
(ii)
In
the amount of the Organizer’s Second Installment as and when
required in order to complete the organization of the Bank and
satisfy the conditions or requirements of any regulatory
applications or approvals, but no later than the Charter Date,
unless the Agent and the President jointly determine additional
funds are needed prior to that time to complete the Transaction, in
which case the Agent and President may jointly request that all or
a portion of each Organizer’s Second Installment be paid in
advance of such date; and in each case as reflected in a written
notice to the Organizers delivered at least ten (10) days prior to
the due date for payment of the Second Installment or any portion
thereof.
(c)
The
Organizers agree that if the Charter Date shall not have occurred
by the date which is eighteen (18) months after the date of
this Agreement ( “Termination Date” ),
unless such time is extended by written agreement of the Company
and Investors who have subscribed for not less than a majority of
the shares in the Investor Subscription Pool, this Agreement shall
terminate and each of the Organizers shall:
(i)
receive
a pro rata portion of that portion of the Subscription
Amount previously paid by the Organizers after satisfaction of all
expenses incurred in attempting to organize the Bank and complete
the Transaction; and
(ii)
accept
such distribution in full satisfaction of any amounts due under
this Agreement to or from any of the other Organizers, including
the Company.
Notwithstanding
the foregoing, in the event the Investors do not agree to
extend the Termination Date in the manner provided above and
the Charter Date has not occurred before the originally
scheduled Termination Date, then the Company shall have the
option, in its sole discretion and in lieu of terminating this
Agreement, to assume the rights, duties and obligations of the
Investors with respect to the Transaction, the Bank and the
Investor Subscription Pool by paying each of the Investors the
entire Subscription Amount previously paid by them and not
otherwise reimbursed in accordance with this
Section.
Section 1.3
Deposit and Pre-Opening Expenditure of Organizers’
Funds . All funds
collected from the Organizers pursuant to this Agreement (the
“ Organizers’ Funds ”) shall be
deposited into a non-interest bearing account (the “
Organization Account ”) established with the
Dubuque Bank and Trust Company, Dubuque, Iowa (the “
Escrow Bank ”). Upon the
signature of the President or Agent, funds may be withdrawn from
the Organization Account only to be used to pay normal and
customary expenses relating to the Transaction, including, but not
limited to, the following:
(a)
expenses
arising from or relating to the organization, capitalization and
operation of the Bank, including the filing of all necessary
regulatory applications with the Federal Reserve, Commerce and FDIC
to effect the Transaction;
(b)
accounting,
auditing, legal, market study, investment banking, due diligence
and appraisal expenses relating to or in connection with the
Transaction;
(c)
salary
payments to the President and to any other proposed officers or
employees of the Bank that are deemed necessary by the
Agent;
(d)
expenses
relating to the lease, acquisition or development of real estate
for the Bank’s main office; and
(e)
other
expenses arising from or directly relating to the
Transaction;
provided, however , that any expenditure in excess of Five
Thousand Dollars ($5,000) shall require the joint authorization of
the President and the Agent. The President and the Agent
shall jointly compile a budget of estimated expenses relating to
the Transaction (the “ Operating Budget
”). The Organizers hereby acknowledge that the
President and the Agent may begin making withdrawals from the
Organization Account immediately, and accordingly, if the
Transaction were not consummated, the Organizers would not receive
a refund of 100% of the Subscription Amount paid by the Organizers,
as provided in Section 1.2. The Organizers further acknowledge and
agree that B-Opportunities LLC has incurred expenses on behalf of
the Investors which shall not be eligible for payment from the
Organizers’ Funds but for which B-Opportunities may seek
reimbursement from the Investors who were not party to the Initial
Agreement in an aggregate amount not to exceed thirty thousand
dollars ($30,000).
Section 1.4
Books and Records .
The President shall ensure that proper records of all
expenditures from the Organization Account are maintained and such
records shall be available for inspection by any
Organizer.
Article 2
Restrictions on Transfer and Issuance of Bank
Stock
Section 2.1
Transfer Restrictions. Except as
otherwise provided in this Agreement, from the date of this
Agreement through the seventh anniversary of the Charter Date (the
“ Restriction Period ”) each of the
Investors hereby agrees that he, she or it shall not: (a) directly
or indirectly, sell, exchange, assign, transfer, pledge,
hypothecate, give away (by lifetime transfer) or otherwise encumber
or dispose of any Bank Stock at any time owned by him, her or it,
and (b) for Investors that are entities or trusts, issue or permit
the sale, exchange, transfer, pledge, hypothecation, gift,
encumbrance or disposal of any stock, membership interests,
partnership interests, or other beneficial interest in such entity
or trust, or otherwise effect a change in the individual or
individuals that control such entity or trust at the time the
entity or trust became an Investor, whether in their capacity as
trustee, general partner, manager or otherwise (each act or
occurrence described in (a) or (b) individually and collectively a
“ Transfer ”) without the express
prior written consent of the Company, provided, however ,
that the foregoing shall not prohibit the Transfer of Bank Stock
without prior written consent of the Company by an Investor that is
not an entity or trust, subject to the restrictions, terms and
conditions of this Agreement, to any " Permitted
Transferee " which, as to each Investor shall mean an
entity or trust which is and will continue to be for so long as it
holds Bank Stock: (a) controlled by such Investor or by such
Investor and one or more other Investors, and (b) owned by or for
the benefit of such Investor(s), the parents, spouse, lineal
descendants or siblings of such Investor(s), and/or an entity or
trust that itself satisfies the foregoing criteria; provided that
each recipient of any Bank Stock Transferred pursuant to this
paragraph is or becomes a party to this Agreement and agrees to be
bound by its terms, and provided further that for
Investors that are entities or trusts, that no prior written
consent is required for a Transfer of any stock, membership
interests, partnership interests, or other beneficial interest in
such entity or trust that would not effect a change in the
individual or individuals that control such entity or trust at the
time the entity or trust became an Investor.
Section 2.2
Involuntary Transfers . If there
is an involuntary Transfer or proposed involuntary Transfer of an
Investor’s Bank Stock ( e. g. through divorce,
bankruptcy, etc.) at any time (an “
Involuntary Transfer ”), then each of the
Investor, the Investor’s creditor, trustee, or other person
or entity in possession of the power of sale over any Bank Stock,
and the involuntary transferee or transferees of any Bank Stock, as
the case may be, shall give the Company at least sixty (60) days
prior written notice of any proposed, pending, or threatened
Transfer, or, with respect to an Involuntary Transfer that does not
permit the delivery of such prior notice, as soon as permitted
after the Investor has knowledge of an actual or proposed
Involuntary Transfer. Upon receipt of such notice, the Company
shall have the option, in its sole discretion, to purchase from the
Investor, any actual or intended transferee, or person or entity
with the power of sale, any Bank Stock subject to the actual or
proposed Involuntary Transfer, in the manner provided in
Article 3 of this Agreement. In the event the
Company fails to exercise its option under this Section and
Article 3, then the Investor, intended transferee
or person or entity with the power of sale for such Bank Stock
shall be entitled to all of the benefits and subject to all of the
restrictions applicable to Investors and their Bank Stock, as set
forth in this Agreement.
Section 2.3
Other Additional Capital .
(a)
The
Organizers agree that the Bank may, from time to time, issue
additional shares of Bank Stock to senior management and directors
of the Bank, either as compensation, or in exchange for the
investment of additional capital or both (“
Management Stock ”), or to other individuals
that the Board of Directors of the Bank (the “
Board ”) determines are likely to make a
material contribution to the growth and successful operation of the
Bank in exchange for additional capital (“ Key
Investor Stock ”), provided that:
(i)
from
and after the date any Management Stock or Key Investor Stock is
issued, such shares shall be deemed Bank Stock covered by this
Agreement and each new investor in shares of Bank Stock shall
execute and become an Investor under this Agreement;
(ii)
no
more than Five Hundred Thousand Dollars ($500,000) worth of
Management Stock and Key Investor Stock will be so issued without
the prior written consent of a majority of the
Investors;
(iii)
except
as otherwise provided in this Agreement, the value or price used
for determining the amount of compensation or the investment
required for any issuance of Management Stock or Key Investor Stock
authorized by the Organizers on or before the Charter Date shall be
the same per share price applicable to the Organizers and
thereafter shall be as determined by the Board, based on such
factors as the Board may deem reasonable and appropriate,
including, but not limited to the book value and market value of
Bank Stock as well as the value of the anticipated contributions of
the officer, director or key investor to receive the new shares,
but in no event at a value or for a price less than book value;
and
(iv)
the
Company shall be entitled to purchase that number of additional
shares of Bank Stock necessary to maintain the Company’s
percentage ownership of all outstanding shares of Bank Stock at
eighty percent (80%) and at the same per share price applicable to
the proposed issuance of Management Stock or Key Investor
Stock.
(b)
The
Organizers agree that, except as otherwise provided in this Section
2.3, any additional capital needed by the Bank may be contributed
by the Company in return for the issuance of additional Bank Stock,
provided, however , that:
(i)
the
price per share shall be as determined by the Board, based on such
factors as the Board may deem reasonable and appropriate,
including, but not limited to the book value and market value of
Bank Stock, but in no event at a price less than book
value;
(ii)
prior
to any proposed issuance of additional Bank Stock, the Company
shall allow the Investors the right to purchase additional Bank
Stock up to that number of shares that would be necessary to allow
the Investors to maintain the same percentage ownership of
outstanding Bank Stock they enjoyed prior to the issuance of any
additional Bank Stock;
(iii)
any
right of an Investor to purchase any additional shares of Bank
Stock pursuant to the provisions of this Section shall not be
transferable or assignable (except as provided in
Section 2.1 ) and any shares of Bank Stock
purchased in connection with the exercise of such right would be
subject to all the terms of this Agreement;
(iv)
any
purchase of additional Bank Stock by an Investor pursuant to the
terms of this Section must be made on the same terms and conditions
as the Company; and
(v)
any
such offer to purchase additional Bank Stock shall be made to all
the Investors in compliance with applicable laws and
regulations.
Except
as expressly provided in this Section or as required by
applicable law, each of the Investors hereby acknowledges that
they shall have no rights to subscribe for additional Bank
Stock.
Article 3
Repurchase Options
Section 3.1
Repurchase Option Following Fifth Anniversary
.
(a)
Beginning
on the fifth anniversary of the Charter Date (the “
Fifth Anniversary ”) and as of the end of
each calendar quarter thereafter, the Company shall have the
option, but is not obligated to, purchase from the Investors, and
each of the Investors agrees, upon exercise of such option, to sell
to the Company, all Bank Stock then owned by the Investors on the
terms set forth in this Section (“
Company Option ”). The Company
may exercise the Company Option by delivering written notice to all
Investors no later than thirty (30) days
after the later of the Fifth Anniversary or the end of the most
recent calendar quarter, stating that the Company Option is being
exercised. The total purchase price for the Investors’ Stock
shall be an amount equal to the Repurchase Price, as defined
below.
(b)
Except
as provided in this Section, the “ Repurchase
Price ” shall be the appraised value of Bank Stock
as of the later of the Fifth Anniversary or the end of the most
recent calendar quarter ( “Appraisal
Date” ), as determined by Alex Sheshunoff Management
Services, Inc. or its successor, or if neither such firm nor its
successor is still in existence and performing appraisals of the
stock of commercial banks, then by an independent, nationally
recognized appraisal firm with no less than ten (10) years of
experience in appraising the stock of commercial banks, jointly
selected by the Company and the Investors (the “
Appraised Value ”). In no event shall the
Appraised Value be an amount that is less than the Floor (defined
below) or greater than the Cap (defined below). For purposes of
this Agreement, the “Floor” shall be
an amount equal to a six percent (6%) compounded annual return on
the Investors’ investment, provided that in the event the
Company Option is not exercised as of Fifth Anniversary, the
compounded annual rate of return shall be Prime plus two percent
(2%) for the period following the Fifth Anniversary. For
purposes of this Agreement, the “Cap”
shall be: (x) an amount equal to 3.0 times the tangible book value
of Bank Stock as of the Appraisal Date if the book value of the
Bank’s total assets is two hundred million ($200,000,000) or
more, the Bank has a net profit for the prior twelve month period
or on average over the prior two years, and the Bank is not subject
to a regulatory enforcement order, civil money penalty notice,
memorandum of understanding or similar enforcement action, or (y)
in all other circumstances, an amount equal to 2.25 times the
tangible value of Bank Stock as of the Appraisal
Date. For purposes of this Section: (i) the Appraised
Value of Bank Stock shall be determined as if 100% of the Bank were
being sold; (ii) if the value of the Bank or Bank Stock is
presented as a range, the Appraised Value shall be the mid-point of
such range; (iii) the Bank’s net income and book value shall
be adjusted on an after tax basis to exclude any expenses for the
management performance pool, as described in the President’s
Employment Offer under “Additional Bonus”, provided
that the aggregate Repurchase Price shall also be reduced by the
amount of such excluded after tax expenses unless the Repurchase
Price is equal to the Floor or Cap; and (iv) if corporate overhead
is allocated by the Company to the Bank in a manner which is
inconsistent with established company methodology for allocations
to its affiliates and subsidiaries, then the Bank’s net
income and book value will be adjusted on an after tax basis to
reflect a corporate overhead allocation consistent with such
methodology.
(c)
The
Repurchase Price shall be paid to Investors (pro rata based upon
their respective percentage ownership of Bank Stock) in two
parts:
(i)
the
first part of the Repurchase Price, which shall be equal to each
Investor’s total investment as reflected on such
Investor’s signature page to this Agreement, shall be paid to
the Investor, at the Investor’s election (but subject to
compliance with any applicable securities laws) in cash, common
stock of the Company (“ Company Stock
”) or a combination of cash and Company Stock;
and
(ii)
the
second part of the Repurchase Price, which shall be equal to each
Investor’s pro rata share of the remaining balance of the
total Repurchase Price, shall be paid to each Investor, at the
Company’s election (but subject to compliance with any
applicable securities laws) in cash, Company Stock or a combination
of cash and Company Stock.
For
purposes of this Section, the per share value of Company Stock
shall be equal to the VWAP, which means the volume weighted
average price per share of Company Stock, rounded to the
nearest one-hundredth of a cent, during the ninety (90)
days prior to the Fifth Anniversary. For purposes
of this Agreement, the VWAP shall be calculated using the
default criteria for the function known as “Bloomberg
VWAP” of the AQR function for Company Stock on the
automated quote and analytical system distributed by Bloomberg
Financial LP.
Section 3.2
Other Sales to or Purchases by the Company. At any
time after the date hereof, an Investor may offer to sell all or
part of his, her or its Bank Stock to the Company and, upon
acceptance of such offer by the Company in its sole discretion,
such Bank Stock may be sold to the Company, for a purchase price of
not less than such Investor’s total investment as reflected
on such Investor’s signature page to this Agreement, plus a
six percent (6%) annually compounded rate of return on such
investment, and on such other terms and
conditions as such Investor and the Company may mutually agree. If
at any time after the date hereof, any Bank Stock of an Investor is
subject to an Involuntary Transfer, then the Company shall have the
option, in its sole discretion, to purchase such Bank Stock for a
purchase price equal to such Investor’s total investment as
reflected on such Investor’s signature page to this
Agreement, plus a six percent (6%) annually compounded rate of
return on such investment (the “ Involuntary Transfer
Option ”). The Company’s Involuntary Transfer
Option may be exercised by delivery of notice to the Investor,
intended transferee or person or entity with the power of sale of
such Bank Stock within thirty (30) days after the Company receives
actual notice of a proposed, pending, or actual Involuntary
Transfer. Notwithstanding the foregoing, an Investor
shall first offer all, but not less than all, of his, her or its
Bank Stock to the other Investors on a pro rata basis provided that
such sale or transfer lawfully is exempt from registration under
the Act, as hereinafter defined, and state securities
laws.
Section 3.3
Repurchase Upon Company Change of Control
. If at any time after the date hereof
there is a proposed “Change of Control” (as defined
below), then immediately prior to such Change of Control, either
(a) the Company, or its successor, shall purchase from the
Investors, and each Investor agrees to sell to the Company or its
successor, all of the Bank Stock then owned by the Investors at a
price per share equal to the Control Premium Price (defined below)
or, (b) the Investors may elect to exchange their shares of Bank
Stock for the same consideration to be received by holders of
common stock of the Company in the transaction comprising the
Change of Control, on an as if converted basis using a per share
exchange ratio equal to the book value per share of Bank Stock
divided by the book value per share of Company common stock as of
the end of the most recent calendar quarter. For
purposes of this Section, a “ Change of
Control ” shall mean a transaction resulting in the
acquisition by any person or entity (a “ Company
Acquirer ”) of:
(a)
legal
or beneficial ownership (as defined by Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended) of greater
than two thirds (2/3) of the then issued and outstanding Company
Stock through any transaction; or
(b)
all
or substantially all of the assets of the Company.
The
“ Control Premium Price ” shall
be equal to the per share book value of the Investor’s
equity interest in the Bank, multiplied by the same multiple
of book value as paid by the Company Acquirer for the stock or
assets of the Company. For example, if the Company
is sold to another entity for three times the Company’s
book value, the Control Premium Price would be equal to three
times the per share book value of the Investor’s equity
interest in the Bank. In the event the consideration to be
paid by the Company Acquirer is not comprised entirely of
cash, then, for purposes of determining the Control Premium
Price, any non-cash consideration shall be valued as agreed to
by the parties or, absent such an agreement, the value
provided in the applicable acquisition agreement or, if no
value is provided, the VWAP of any publicly traded securities
or the appraised fair market value of any other non-cash
consideration. For purposes of this section, VWAP shall mean
the volume weighted average price per share of such
securities, rounded to the nearest one-hundredth of a cent,
during the ninety (90) days prior to repurchase by the
Company.
Section 3.4
Terms, Time and Place of Closing .
(a)
Except
as otherwise specifically provided by the terms of this Article,
the purchase price of any Bank Stock purchased by the Company or
its successor from any Investor pursuant to the terms of this
Article 3 shall be paid by wire transfer of
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