UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 40-F
[ ] Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934
or
[ x ] Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2006 | Commission File Number: 001-33153 |
ENDEAVOUR SILVER
CORP.
(Exact name of registrant as specified in its
charter)
Province of British Columbia, | 1040 (Silver mining) | Not Applicable |
Canada | (Primary Standard Industrial Classification | (I.R.S. Employer |
(Province or Other Jurisdiction of | Code) | Identification No.) |
Incorporation or Organization) |
#800 850 West Hastings Street
Vancouver, BC, Canada,
V6C 1E1
(604) 685-9775
(Address and telephone number of
registrants principal executive offices)
Dorsey & Whitney LLP
Republic Plaza Building, Suite
4700
370 Seventeenth
(303) 629-3400
(Name, address and
telephone number of agent for service in the United States)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class: | Name of Each Exchange On Which Registered: |
Common shares without par value | American Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
For annual reports, indicate by check mark the information filed with this form:
[ x ] Annual Information Form Audited [ x ] Annual Financial Statements
As at December 31, 2006, 42,373,988 common shares of the Registrant were issued and outstanding.
Indicate by check mark whether the Registrant by filing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). If "Yes" is marked, indicate the filing number assigned to the Registrant in connection with such Rule. [ ] Yes [ x ] No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [ ] Yes [ x ] No
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EXPLANATORY NOTE
Endeavour Silver Corp. (the Company or the Registrant) is a Canadian issuer eligible to file its annual report pursuant to Section 13 of the Securities Exchange Act of 1934, as amended (the Exchange Act) on Form 40-F pursuant to the multi-jurisdictional disclosure system of the Exchange Act . The Company is a foreign private issuer as defined in Rule 3b-4 under the Exchange Act. Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3.
FORWARD-LOOKING STATEMENTS
This annual report on Form 40-F and the exhibits attached hereto contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements concern the Companys anticipated results and developments in the Companys operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.
Statements concerning reserves and mineral resource estimates may also be deemed to constitute forward-looking statements to the extent that they involve estimates of the mineralization that will be encountered if the property is developed, and in the case of mineral reserves, such statements reflect the conclusion based on certain assumptions that the mineral deposit can be economically exploited. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as expects or does not expect, is expected, anticipates or does not anticipate, plans, estimates or intends, or stating that certain actions, events or results may, could, would, might or will be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:
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This list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further in the exhibits attached to this annual report. Should one or more of these risks and uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the forward-looking statements. Forward-looking statements are made based on managements beliefs, estimates and opinions on the date the statements are made, and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Investors are cautioned against attributing undue certainty to forward-looking statements.
NOTE TO UNITED STATES READERS-
DIFFERENCES IN
UNITED STATES AND CANADIAN REPORTING PRACTICES
The Company is permitted, under a multi-jurisdictional disclosure system adopted by the United States, to prepare this annual report in accordance with Canadian disclosure requirements, which are different from those of the United States. The Company prepares its financial statements, which are filed with this report on Form 40-F, in accordance with Canadian generally accepted accounting practices (GAAP), and they may be subject to Canadian auditing and auditor independence standards. They may not be comparable to financial statements of United States companies. Significant differences between Canadian GAAP and United States GAAP are described in Note 14 of the audited consolidated financial statements of the Company.
CURRENCY
Unless otherwise indicated, all dollar amounts in this annual report on Form 40-F are in United States dollars. The exchange rate of Canadian dollars into United States dollars, on December 29, 2006, based upon the noon buying rate in New York City for cable transfers payable in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York, was U.S.$1.00 = CDN$1.1656.
RESOURCE AND RESERVE ESTIMATES
The Companys Annual Information Form filed as Exhibit 1 to this annual report on Form 40-F and documents incorporated therein by reference have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. The terms mineral reserve, proven mineral reserve and probable mineral reserve are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) and the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) - CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the United States Securities and Exchange Commission (SEC) Industry Guide 7 (SEC Industry Guide 7) under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7 standards, a final or bankable feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority.
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In addition, the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. Inferred mineral resources have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of contained ounces in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute reserves by SEC standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this report and the documents incorporated by reference herein containing descriptions of our mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations there under.
ANNUAL INFORMATION FORM
The Companys Annual Information Form (AIF) for the fiscal year ended December 31, 2006 is filed as Exhibit 1 and incorporated by reference in this annual report on Form 40-F.
AUDITED ANNUAL FINANCIAL STATEMENTS AND
MANAGEMENTS
DISCUSSION AND ANALYSIS
Audited Annual Financial Statements
The audited consolidated financial statements of the Company for the year ended December 31, 2006, the ten months ended December 31, 2005, and the year ended February 28, 2005, including the report of the independent auditor with respect thereto, are filed as Exhibit 2 and incorporated by reference in this annual report on Form 40-F. For a reconciliation of material measurement differences between Canadian and United States generally accepted accounting principles, see Note 14 to the Companys audited consolidated financial statements.
Managements Discussion and Analysis
The Companys managements discussion and analysis for the year ended December 31, 2006 (MD&A) is filed as Exhibit 3 and incorporated by reference in this annual report on Form 40-F.
Tax Matters
Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this annual report on Form 40-F.
DISCLOSURE CONTROLS AND PROCEDURES
At the end of the period covered by this report, an evaluation was carried out under the supervision of and with the participation of the Companys management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operations of the Companys disclosure controls and procedures (as defined in Rule 13a 15(e) and Rule 15d
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15(e) under the Exchange Act). Unforeseen circumstances in subsidiaries acquired during 2006 have necessitated additional work being undertaken at year end which has impacted on the timeliness of this filing. Refer below to Changes in Internal Controls Over Financial Reporting -Remedial Action Implemented and Planned. Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this report, the Companys disclosure controls and procedures were adequately designed and effective in ensuring that: (i) information required to be disclosed by the Company in reports that it files or submits to the Securities and Exchange Commission under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As the Company is a foreign private issuer as defined in Rule 3b-4 of the Exchange Act, is not a large accelerated filer and is a newly reporting company within the United States, the Companys managements report on internal control over financial reporting and the Companys auditor attestation report on managements evaluation of internal controls over financial reporting are not required until the Companys annual report for the year ended December 31, 2007.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the period covered by this annual report on Form 40-F, except for the responses to the risks identified below, no changes occurred in the Companys internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
Risks from Remote Operations
The Companys operations are undertaken in remote locations in Mexico. The operations were previously undertaken by private corporations which were purchased by the Company. The officers and staff of those private corporations have previously not been required to maintain disclosure controls or internal controls over financial reporting to the same standard now required. In addition, there was a large turnover of accounting staff at the Mexican operations in the last quarter of 2006 and the first quarter of 2007.
Internal Control Weaknesses Identified
There have been difficulties in establishing the opening balance sheet on a Canadian GAAP and US GAAP basis of the subsidiaries acquired, there have been difficulties in confirming the taxation base of the
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subsidiaries acquired, there have been difficulties in transforming the reporting of the subsidiaries acquired from a cash basis of reporting to an accruals basis of reporting, there have been difficulties in obtaining timely information from the subsidiaries acquired, and there have been difficulties in the reconciliation process for the accounts in the subsidiaries acquired. There have been instances of insufficient segregation of duties which although typical of small companies of this size were outside those anticipated. There have been accounting staff resource constraints both in capacity and skills which have impacted on the financial reporting of income taxes and complex accounting transactions.
Likelihood of Material Misstatement
Management has determined that certain weaknesses in the Companys internal controls over financial reporting stemming principally from its Mexican operations could result in a more than remote likelihood that a material misstatement would not be prevented or detected. Management in Canada and Mexico and the board of directors have been working to mitigate the risk of a material misstatement in financial reporting. However, there can be no assurance that this risk can be reduced to less than a remote likelihood of a material misstatement at this time.
Remedial Action Implemented and Planned
The Company has taken steps to improve its internal controls through the appointment of more experienced and qualified staff in Mexico and Canada and through the hiring of specialist services particularly in relation to local Mexican taxation regulatory matters. Significant time has been spent by senior financial staff on proving balances in the Mexican subsidiaries as at Dec 31 2006. More rigorous reporting and control standards have been introduced since year end. Management and senior financial staff will continue to closely monitor the financial reporting from the operations in Mexico. Management and the Audit Committee intend to engage additional external audit services to perform additional procedures including the testing of internal controls and the review of the accuracy of financial reporting progressively through 2007 until the control weaknesses are remedied.
The Companys management, including the CEO and CFO, does not expect that its disclosure controls and procedures or internal controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
CORPORATE GOVERNANCE
The Companys Board of Directors is responsible for the Companys Corporate Governance policies and has separately designated standing Compensation, Nominating and Audit Committees. The Companys Board of Directors has determined that all the members of the Compensation, Nominating, and Audit
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Committees are independent, based on the criteria for independence and unrelatedness prescribed by the Sarbanes-Oxely Act of 2002, section 10A(m)(3) and the American Stock Exchange.
Compensation
Compensation of the Companys CEO and all other officers is recommended to the board for determination by the Compensation Committee. The Compensation Committee develops, reviews and monitors director and executive compensation and policies. The Compensation Committee is also responsible for annually reviewing the adequacy of compensation for directors and others and the composition of compensation packages. The Companys CEO cannot be present during the Committees deliberations or vote. The Compensation Committee is composed of two independent directors: Geoffrey Handley and Leonard Harris.
Nominating Committee
Nominees for the election to the Board of Directors are recommended by the Nominating Committee. The Company has adopted a formal written board resolution addressing the nomination process and such related matters as may be required under federal securities laws. The Nominating Committee is composed of three independent directors: Geoffrey Handley, Leonard Harris, and Mario Szotlender.
AUDIT COMMITTEE
The Companys Board of Directors has a separately designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Exchange Act. The Companys Audit Committee is comprised of:
In the opinion of the Companys Board of Directors, all members of the Audit Committee are independent (as determined under Rule 10A-3 of the Exchange Act and the rules of the American Stock Exchange) and are financially literate.
The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board of Directors.
The Audit Committee meets with the President/Chief Operating Officer (COO), the CEO and the CFO of the Company and the Companys independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, as well as audit procedures and audit plans. The Audit Committee also recommends to the Board of Directors the auditors to be appointed. In addition, the Committee reviews and recommends to the Board of Directors for approval the annual financial statements, the Management Discussion and Analysis, and undertakes other activities required by regulatory authorities.
Audit Committee Financial Expert
The Companys Board of Directors has determined that Mario Szotlender, a member of the Audit Committee, qualifies as an audit committee financial expert (as defined in Item 407 of Regulation S-K under the Exchange Act) and is independent as defined by the American Stock Exchange.
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PRINCIPAL ACCOUNTING FEES AND SERVICES INDEPENDENT AUDITORS
The following table shows the aggregate fees billed to the Company by KPMG LLP and its affiliates, Chartered Accountants, the Companys external auditor, in each of the last two years.
2006 | 2005 | |
Audit Fees | CAD $180,000 | CAD $49,000 |
Audit Related Fees (i) | $98,000 | $0 |
Tax Fees | $0 | $0 |
All other fees | $0 | $0 |
Total | CAD $278,000 | CAD $49,000 |
(i) Audit related fees relate to services provided in connection with interim reviews and the Companys registration document on Form 40-F.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY
INDEPENDENT AUDITORS
The Audit Committee pre-approves all audit services to be provided to the Company by its independent auditors. The Audit Committees policy regarding the pre-approval of non-audit services to be provided to the Company by its independent auditors is that all such services shall be pre-approved by the Audit Committee. Non-audit services that are prohibited to be provided to the Company by its independent auditors may not be pre-approved. In addition, prior to the granting of any pre-approval, the Audit Committee must be satisfied that the performance of the services in question will not compromise the independence of the independent auditors. Since the enactment of the Sarbanes-Oxley Act of 2002, all non-audit services performed by the Companys auditor for the fiscal year ended December 31, 2006 have been pre-approved by the Audit Committee of the Company. No non-audit services were approved pursuant to the de minimis exemption to the pre-approval requirement.
OFF-BALANCE SHEET TRANSACTIONS
The Company does not have any off-balance sheet financing arrangements or relationships with unconsolidated special purpose entities.
CODE OF ETHICS
The Company has adopted a Code of Business Conduct and Ethics for all its directors, executive officers and employees, which is available to any person, without charge, by written request to the Companys Secretary at its principal executive office at #800 850 West Hastings Street, Vancouver, BC, Canada, V6C 1E1. The Code of Business Conduct and Ethics is also available on the Companys website.
All amendments to the code, and all waivers of the code with respect to any of the officers covered by it, will be posted on the Companys website, submitted on Form 6-K and provided in print to any shareholder who requests them. The Companys website is located at www.edrsilver.com.
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CONTRACTUAL OBLIGATIONS
The following table lists as of December 31, 2006 information with respect to the Companys known contractual obligations.
Payments due by Period | |||||
Contractual Obligations |
Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
Long-Term Debt Obligations | Nil | Nil | Nil | Nil | Nil |
Capital (Finance) Lease Obligations | Nil | Nil | Nil | Nil | Nil |
Operating Lease Obligations | Nil | Nil | Nil | Nil | Nil |
Purchase Obligations (i) | US$4,456,000 | US$1,376,000 | US$3,080,000 | Nil | Nil |
Other Long-Term Liabilities Reflected on the Companys Balance Sheet under Canadian GAAP (ii) |
US$954,000 |
Nil |
Nil |
Nil |
US$954,000 |
TOTAL | US$5,410,000 | US$1,376,000 | US$3,080,000 | Nil | US$954,000 |
(i) |
Includes US$543,000 of commitments for capital expenditure due for payment in Less than 1 year and US$3,913,000 of obligations under property option agreements necessary to attain 100% ownership of producing properties and certain exploration properties. |
(ii) |
Asset Retirement Obligations Reclamation and Closure Costs CAD$1,112,000. |
NOTICES PURSUANT TO REGULATION BTR
There were no notices required by Rule 104 of Regulation BTR that the Registrant sent during the year ended December 31, 2006 concerning any equity security subject to a blackout period under Rule 101 of Regulation BTR.
AMEX CORPORATE GOVERNANCE
The Companys common shares are listed on The American Stock Exchange (AMEX). Section 110 of the AMEX Company Guide permits AMEX to consider the laws, customs and practices of foreign issuers in relaxing certain AMEX listing criteria, and to grant exemptions from AMEX listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home country law. A description of the significant ways in which the Companys governance practices 9
differ from those followed by domestic companies pursuant to AMEX standards is as follows:
Shareholder Meeting Quorum Requirement: The AMEX minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on AMEX is required to state its quorum requirement in its bylaws. The Companys quorum requirement is set forth in its Memorandum and Articles. A quorum for a meeting of members of the Company is two persons who are, or who represent by proxy, shareholders who, in the aggregate, hold at least 5% of the shares entitled to be voted at the meeting.
Proxy Delivery Requirement: AMEX requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies shall be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Company is a foreign private issuer as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Company are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
The foregoing are consistent with the laws, customs and practices in Canada.
In addition, we may from time-to-time seek relief from AMEX corporate governance requirements on specific transactions under Section 110 of the AMEX Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by our home country law, in which case, we shall make the disclosure of such transactions available on our website at www.endeavoursilver.com. Information contained on our website is not part of this annual report.
UNDERTAKING
The Company undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.
CONSENT TO SERVICE OF PROCESS
The Company filed an Appointment of Agent for Service of Process and Undertaking on Form F-X with respect to the class of securities in relation to which the obligation to file the Form 40-F arises.
EXHIBITS
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3. | Managements Discussion and Analysis |
CERTIFICATIONS
4. |
Certificate of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act |
5. |
Certificate of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act |
6. | |
7. |
CONSENTS
8. | |
9. |
Consent of A.E. Olson, Member AusIMM, of Range Consulting Group, LLC |
10. | |
11. |
Consent of William Lewis, B.Sc., P.Geo. of Micon International Ltd (Micon) |
12. | |
13. |
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.
ENDEAVOUR SILVER CORP. | ||
Date: April 10, 2007 | By: | /s/ Bradford Cooke |
Name: | Bradford Cooke | |
Title: | Chairman and Chief Executive Officer |
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