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Amendments To Notes, Loan Documents And Warrants

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BRILLIANT DIGITAL ENTERTAINMENT, INC.
14011 Ventura Boulevard, Suite 501
Sherman Oaks, CA 91423


Dated as of September 26, 2005


To the Holders of Secured Convertible Promissory Notes of Brilliant Digital Entertainment, Inc. Set Forth on the Schedule 1 Attached Hereto


Re: Amendments to Notes, Loan Documents and Warrants


Gentlemen:


Reference is made to those certain (i) Secured Convertible Promissory Notes, dated May 23, 2001, issued by the Brilliant Digital Entertainment, Inc., a Delaware corporation ("BDE", collectively, with its subsidiaries, the "COMPANY"), in favor of each of Harris Toibb, Europlay 1, LLC and Preston Ford, Inc., each as previously amended by that certain Amendment No. One to Secured Convertible Promissory Note, dated as of December 19, 2001, and those certain Amendments No. Two, Three, Four and Five to Secured Convertible Promissory Note, dated as of October 4, 2002, December 31, 2003, March 30, 2004 and September 26, 2004, respectively (as amended, each a "MAY CONVERTIBLE NOTE" and collectively, the "MAY CONVERTIBLE NOTES"); (ii) Secured Convertible Promissory Notes, dated December 19, 2001, issued by the Company in favor of each of Harris Toibb and Capel Capital, Ltd., each as previously amended by those certain Amendments No. One, Two, Three and Four to Secured Convertible Promissory Note, dated as of October 4, 2002, December 31, 2003, March 30, 2004 and September 26, 2004, respectively (each a "DECEMBER CONVERTIBLE NOTE" and collectively, the "DECEMBER CONVERTIBLE NOTES"); (iii) Warrants to Purchase Common Stock of Brilliant Digital Entertainment, Inc. in favor of each of Harris Toibb, Europlay 1, LLC and Preston Ford, Inc., dated May 23, 2001, each as previously amended by those certain Amendments No. One, Two and Three to the Warrant to Purchase Common Stock dated as of December 19, 2001, March 30, 2004 and September 26, 2004, respectively, which expire October 4, 2008 (each a "MAY WARRANT" and collectively, the "MAY WARRANTS"), (iv) Warrants to Purchase Common Stock of Brilliant Digital Entertainment, Inc. in favor of Harris Toibb and Capel Capital, Ltd., dated December 19, 2001, each as previously amended by those certain Amendments No. One and Two to the Warrant to Purchase Common Stock dated as of March 30, 2004 and September 26, 2004, respectively, which expire October 4, 2008 (each a "DECEMBER WARRANT" and collectively, the "DECEMBER WARRANTS") (v) Warrants to purchase Common Stock of Brilliant Digital Entertainment, Inc. in favor of each of the Holders, dated October 4, 2002 as previously amended by Amendment No. One to the Warrant to Purchase Common Stock dated September 26, 2004, which expire October 4, 2008 (each an "OCTOBER WARRANTS" and collectively, the "OCTOBER WARRANTS"); (vi) Warrants to Purchase Common Stock of Brilliant Digital Entertainment, Inc. in favor of Harris Toibb, Europlay 1, LLC, Preston Ford, Inc. and Capel Capital, Ltd. dated as of March 30, 2004 as previously amended by Amendment No. One to the Warrant to Purchase Common Stock dated as of September 26, 2004, which expire October 4, 2008 (each a "MARCH WARRANT" and collectively, the "MARCH WARRANTS") (the May


Warrants, the December Warrants, the October Warrants and the March Warrants, together are referred to as the "WARRANTS"); (vii) each of the Purchase Agreements defined in and incorporated by reference in to the May Convertible Notes and the December Convertible Notes as amended by this Agreement; (viii) the Letter Agreement dated March 30, 2004, between the Company and each of the Holders (the "MARCH 2004 LETTER AGREEMENT") and (ix) the Letter Agreement dated as of September 26, 2004, between the Company and each of the Holders (the "SEPTEMBER 2004 LETTER AGREEMENT").


The May Convertible Notes and the December Convertible Notes (collectively, the "NOTES") had a stated maturity date of December 31, 2003 (the "MATURITY DATE") and the Company notified each of you that it would not be able to pay the amounts outstanding under the May Convertible Notes and the December Convertible Notes on the Maturity Date. As of December 31, 2003, each of you agreed in writing to an extension of the Maturity Date to March 1, 2004 (the "MARCH 2004 MATURITY DATE"). The Company notified each of you that it would not be able to pay the amounts outstanding under the May Convertible Notes and the December Convertible Notes on the March Maturity Date and each of you agreed to an extension of the March Maturity Date to September 26, 2004 (the "SEPTEMBER 2004 MATURITY DATE"). At September 26, 2004 the Notes were in default. Subsequently, as of September 26, 2004, each of you agreed to an extension of the September 2004 Maturity Date to September 26, 2005 (the "SEPTEMBER 2005 MATURITY DATE"). The Company has again notified you that it will not be able to pay the amounts outstanding under the Notes on the Maturity Date.


This letter agreement (this "AGREEMENT") constitutes the binding agreement of the Company and each of you (each, a "HOLDER"), pursuant to which each Holder and the Company shall amend the Purchase Agreements, the March 2004 Letter Agreement, the September 2004 Letter Agreement, the May Convertible Notes, the May Warrants, the December Convertible Notes, the December Warrants, the October Warrants and the March Warrants on the terms and conditions set forth herein. To the extent that Purchase Agreements, the March 2004 Letter Agreement, the September 2004 Letter Agreement, the May Convertible Notes, the December Convertible Notes, the May Warrants, the December Warrants, the October Warrants or the March Warrants are not amended by this Agreement, directly or indirectly, then the terms thereof, respectively shall remain in full force and effect.


For good and valuable consideration, receipt of which is hereby acknowledged, the Company and each Holder agree as follows:


1. AMENDMENTS TO SECURED PROMISSORY NOTES.


1.1 AMENDMENTS. Concurrently with the execution and delivery of this Agreement by each Holder and the Company, the Company and such Holder shall execute and deliver, to the extent applicable to such Holder, (i) that certain Amendment No. Six to Secured Convertible Promissory Note, dated as of September 26, 2005, substantially in the form attached hereto as EXHIBIT A (the "MAY NOTE AMENDMENT"), which May Note Amendment shall amend the Holder's respective May Convertible Note to (A) change the Maturity Date (as defined therein) from September 26, 2005 to March 31, 2006 and (B) change the definition of Purchase Agreement to include the March 2004 Letter Agreement, the September 2004 Letter Agreement, this Agreement and all extension agreements, as amended and (ii) that certain Amendment


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No. Five to Secured Convertible Promissory Note, dated as of September 26, 2005, substantially in the form attached hereto as EXHIBIT B (the "DECEMBER NOTE AMENDMENT" and collectively with the May Note Amendment, the "NOTE AMENDMENTS") (the Notes, as amended to the date of this Agreement and the Note Amendments, collectively, the "SECURED PROMISSORY NOTES"), which December Note Amendment shall amend the Holder's respective December Convertible Note to (A) change the Maturity Date (as defined therein) from September 26, 2005 to March 31, 2006 and(B) change the definition of Purchase Agreement to include the March 2004 Letter Agreement, the September 2004 Letter Agreement, this Agreement and all extension agreements, as amended.


1.2 CONVERSION PRICE. Effective upon the Reverse Stock Split (as defined below), the Conversion Price of each Note shall be adjusted to $0.02, which Conversion Price shall remain subject to further adjustment and change as provided in the Purchase Agreement.


1.3 THE PURCHASE AGREEMENT, NOTE AMENDMENTS AND LETTER AGREEMENT EXTENSION. Each of the terms and provisions of the Original Purchase Agreement (as defined in the Note Amendments), the May Convertible Notes, the December Convertible Notes, the May Warrants, the December Warrants, the October Warrants, the March Warrants, the Note Amendments set forth in the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement shall continue in full force and effect, unless expressly amended in writing by the Company and the Holders until the later of (A) the Maturity Date of the Notes provided for in this Agreement or (B) the payment in full and performance in full by the Company of all of its obligations under this Agreement or under any of the foregoing agreements.


2. AMENDMENTS TO WARRANTS. Concurrently with the execution and delivery of this Agreement by each Holder and the Company, the Company and such Holder shall execute and deliver, to the extent applicable to such Holder, that certain (i) Amendment No. Four to the May Warrant dated as of September 26, 2005, substantially in the form attached hereto as Exhibit C (the "MAY WARRANT AMENDMENT") which May Warrant Amendment shall amend the Holder's respective May Warrant to (A) adjust the Purchase Price to $0.02 and (B) confirm that the Purchase Price as adjusted remains subject to further adjustment and change as provided in the May Warrant; (ii) Amendment No. Three to the December Warrant dated as of September 26, 2005, substantially in the form attached hereto as Exhibit D (the "DECEMBER WARRANT AMENDMENT") which December Warrant Amendment shall amend the Holder's respective December Warrant to (A) adjust the Purchase Price to $0.02 and (B) confirm that the Purchase Price, as adjusted remains subject to further adjustment and change as provided in the December Warrant, (iii) that certain Amendment No. Two to the October Warrant dated as of September 26, 2005, substantially in the form attached hereto as Exhibit E (the "OCTOBER WARRANT AMENDMENT") which October Warrant Amendment shall amend the Holder's respective October Warrant to (A) adjust the Purchase Price to $0.02 and (B) confirm that the Purchase Price as adjusted remains subject to further adjustments and change as provided in the October Warrant, and (iv) that certain Amendment No. Two to the March Warrant dated as of September 26, 2005, substantially in the form attached hereto as Exhibit F (the "MARCH WARRANT AMENDMENT") which March Warrant Amendment shall amend the Holder's respective March Warrant to (A) adjust the Purchase Price to $0.02 and (B) confirm that the Purchase Price as


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adjusted remains subject to further adjustment and change as provided in the March Warrant (collectively, the "WARRANT AMENDMENTS").


3. CONSIDERATION FOR AMENDMENTS. In consideration of each Holder's amendment of the May Convertible Note and/or December Convertible Note, as soon as practicable following receipt by the Company of this Agreement and the May Note Amendment and/or December Note Amendment, as applicable, countersigned by the Holder, the Company shall (i) enter into this Agreement, (ii) execute and deliver the Warrant Amendments and (iii) issue to each Holder a warrant expiring October 5, 2009 (each an "IMMEDIATE SEPTEMBER WARRANT" and collectively the "IMMEDIATE SEPTEMBER WARRANTS") initially exercisable for a number of shares of Common Stock equal to (a) 111,000,000 multiplied by (b) a percentage determined by dividing the outstanding principal amount of such Holder's May Convertible Note and/or December Convertible Note by the total outstanding principal amount of all Holders' May Convertible Notes and December Convertible Notes, at an exercise price of $0.02 per share. Additionally, the Company shall issue to each Holder a warrant expiring October 5, 2009 effective on the effectiveness of the Reverse Stock Split (as defined below) (each a "SEPTEMBER WARRANT" and collectively, the "SEPTEMBER WARRANTS") initially exercisable for a number of shares of Common Stock equal to (i) one hundred seventy five percent (175%) of the outstanding principal amount (which for purposes of clarity, shall not include accrued but unpaid interest, costs and fees) of the May Convertible Note and/or December Convertible Note being amended by the Holder pursuant to this Agreement, DIVIDED BY (ii) a price (the EXERCISE PRICE") of two cents ($0.02) minus the number of shares underlying the Immediate September Warrant issued to such Holder. Each Immediate September Warrant and each September Warrant shall have an exercise price per share equal to the Exercise Price, and shall otherwise be on the terms set forth in the form of the Immediate September Warrant and the September Warrant attached hereto as EXHIBITS G and H, respectively, to this Agreement.


4. INTENTIONALLY DELETED.


5. EXCESS CASH AND OTHER REQUIRED PAYMENTS. Effective as of September 26, 2005, Section 5.1 of the September 2004 Letter Agreement is deleted (on a going forward basis). In lieu thereof, effective from and after September 26, 2005, the Company shall make the payments to the Holders in accordance with the following Section 5.1 (which is not intended to replace any other provision of the September 2004 Letter Agreement):


5.1. OTHER PAYMENTS. Until the Secured Promissory Notes and all of the obligations thereunder and under any and all of the agreements related thereto, including but not limited to the Purchase Agreements, the March 2004 Letter Agreement and the September 2004 Letter Agreement are paid and performed in full, commencing on the date of this Agreement, the Company shall pay cash, in immediately available funds, (i) monthly, in the aggregate amount of Seventy Five Thousand Dollars ($75,000) on the first business day of each month, on a pro rata basis to each Holder directly, to be applied to interest and principal in that order, (ii) quarterly (calculated for these purposes, commencing with the quarter ending September 30, 2005) , not later than 45 days after the end of such quarter, on a pro rata basis to each Holder directly, to be applied to interest and principal in that order, in an amount equal to fifty percent (50%) of any EBITDA in excess of Five Hundred Thousand Dollars ($500,000) determined quarterly from the financial statements contained in the Company's consolidated of operations then most recently


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filed with the Securities and Exchange Commission (the "SEC"), which statements of operations are prepared in accordance with generally accepted accounting principles and with the rules and regulations (including Regulation S-X) promulgated under the Securities Exchange Act of 1934 as amended (the "COMPANY FINANCIAL STATEMENTS"), and (iii) as received by the Company, on a pro rata basis to each Holder directly, to be applied to interest and principal in that order, an amount equal to fifty percent (50%) of (A) any increased revenues received from existing sources of revenue for the Company as of the date of this Agreement, and (B) any and all revenues or other cash or property received from any and all new sources of revenue or cash or property after the date of this Agreement; irrespective of the nature of such revenues, cash or property, including but not limited to renegotiated terms of existing contracts, new contracts, sales or other dispositions of assets, royalties, licensing fees or equity or financing transactions.


6. ACKNOWLEDGEMENT AND AFFIRMATION OF THE NOTES, THE PURCHASE AGREEMENTS, THE MARCH 2004 LETTER AGREEMENT, THE SEPTEMBER 2004 LETTER AGREEMENT AND THE WARRANTS. The Company, and each of Brilliant Studios, Inc. and B3D, Inc (each a "SPECIAL SUBSIDIARY"), acknowledge and agree that (i) the Company is indebted to each Holder in the principal amount set forth on Schedule 1 hereto, plus accrued and unpaid interest and other fees and costs, including an aggregate agreed upon amount of legal fees and costs through September 26, 2005 (inclusive of the Twenty Thousand Dollar ($20,000) Expense Payment addressed in Section 12 of this Agreement), (ii) the Notes, the Purchase Agreements (as such terms are defined in the Notes), the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement and the Warrants delivered in connection with the Notes, the Immediate September Warrants, the September Warrants, the Purchase Agreements, the March 2004 Letter Agreement, the September 2004 Letter Agreement and the amendments thereof are legal, valid and binding obligations of the Company and are and shall continue, after the amendments to the May Convertible Notes, the May Warrants, the December Convertible Notes, the December Warrants, the October Warrants, the March Warrants, the Immediate September Warrants and the September Warrants contemplated herein, in full force and effect and are hereby confirmed in all respects and the Company hereby reaffirms each and every obligation thereunder and each of the waivers and consents made therein, and (iii) the amounts set forth in clause (i) above and the obligation of the Company to repay the Notes and perform under the Purchase Agreements, the Warrants, the Immediate September Warrants and the September Warrants are absolute and unconditional and not subject to any offset, defenses, claims, counterclaims or disputes. The Company and each Special Subsidiary represents and warrants that it has reread the Notes, the Purchase Agreements, the Warrants, the Immediate September Warrants, the September Warrants, the Note Amendments and the Warrant Amendments and each of the obligations, waivers and consents set forth therein and that its execution of this Agreement and the agreements, acknowledgements and affirmations made herein have been done after consultation with legal counsel and with full knowledge of its significance and consequences and in recognition of the fact that on March 1, 2004 and September 26, 2004 the Company and each Special Subsidiary was, and in the absence of this Agreement on September 26, 2005 will continue to be, in default thereunder.


7. REVERSE STOCK SPLIT. In partial consideration of the Holders' agreements herein, it is the parties' intent to reduce the Conversion Price of the Notes to $0.02, reduce the exercise price of the Warrants to $0.02 and for the Company to issue the Immediate September Warrants and the September Warrants to the Holders with a exercise price of $0.02. Presently, the


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Company does not have sufficient authorized shares of its Common Stock to effect the reduction of the Conversion Price of the Notes or the exercise of the September Warrants. The Company's Board of Directors has approved a one-for-ten (1-for-10) reverse stock split of the Corporation's Common Stock which requires an amendment to the certificate of incorporation in order to effect the split (the "Reverse Stock Split"), to increase the number of authorized shares available for future grant. As soon as practicable following the date of this Agreement, the Company shall prepare and file with the SEC a preliminary proxy statement (as amended and supplemented, the "PROXY STATEMENT") in connection with the meeting of its stockholders (the "STOCKHOLDERS MEETING"). At the Stockholders Meeting the Company will seek to obtain stockholder approval ("STOCKHOLDER APPROVAL") of an amendment to the Corporation's Certificate of Incorporation to effect the Reverse Stock Split. The Company shall use its commercially reasonable efforts to respond to written comments of the SEC and its staff, if any and, to the extent permitted by law, to cause the Proxy Statement to be mailed to the Company's stockholders as promptly as practicable after responding to all such comments. The Company shall take all commercially reasonable steps necessary to file with the SEC any amendment or supplement to the Proxy Statement so as to correct or amend the same in response to such comments, if any, and cause the Proxy Statement as so corrected or amended to be disseminated to the stockholders of the Company, in each case, in accordance with applicable law. Additionally, the Company agrees to take all other actions necessary to effect the Reverse Stock Split by December 15, 2005, including obtaining a new CUSIP number for the Company's shares of Common Stock and coordinating with the Company's transfer agent for the exchange of stock certificates following the Reverse Stock Split. The Chief Executive Officer of the Company will execute the Pledge Agreement for the benefit of the Holders in the form attached hereto as Exhibit I.


Although the Company will use commercially reasonable efforts to cause the Reverse Stock Split to be effective by December 15, 2005, if by December 31, 2005 (unless the Proxy Statement is subject to review by the SEC staff, and the comment and response process engaged in by the Company and the SEC staff causes the dissemination of the final Proxy Statement to be delayed beyond December 31, 2005, in which case the December 31, 2005 date shall be extended to January 31, 2006), for any reason or no reason, the Reverse Stock Split is not effective, the September Warrants are not effective or exercisable in accordance with this Agreement or the Conversion Price of the Notes has not been decreased to $0.02, then there shall be default under this Agreement, the Purchase Agreement, the March 2004 Agreement, the September 2004 Agreement, the Notes, the Security Agreement, the Guarantees, the Warrants and all of the amendments to the foregoing which shall result in a default in, and breach of, all obligations of the Company, its subsidiaries and its affiliates (including the Kevin Bermeister Pledge Agreement) under any and all of the foregoing, and the remaining principal amount of the Notes and all accrued interest and other sums or amounts owed there under or under any of the foregoing agreements being due and owing as of such date.


8. ACKNOWLEDGEMENT AND REAFFIRMATION OF SECURITY AGREEMENTS. The Company, and each subsidiary, hereby acknowledge and agree that (a) the Security and Pledge Agreement, dated as of May 23, 2001, as amended, executed by the Company and each Special Subsidiary (including the Trademark Security Agreement by and between the Company and Harris Toibb as agent for the Holders dated as of June 28, 2001 and the Patent Security Agreement by and between B3D, Inc. and Harris Toibb as agent for the Holders dated as of June 28, 2001) (the "MAY SECURITY AGREEMENT") and (b) the Security and Pledge Agreement, dated as of


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December 19, 2001, as amended, executed by the Company and each Special Subsidiary (the "DECEMBER SECURITY AGREEMENT") (i) are legal, valid and binding obligations of the Company and each Special Subsidiary and that no defenses to or claims against the enforcement of the May Security Agreement or the December Security Agreement or the exercise by the Agent of its rights thereunder exist, (ii) grant to the Agent (as such term is defined therein) a valid, enforceable and perfected security interest in and lien against all of the assets of the Company and of each Special Subsidiary as of such dates and as of the date of the March 2004 Letter Agreement, the September 2004 Letter Agreement and as of the date of this Agreement, and (iii) are and shall continue, after the amendments to the May Convertible Notes and December Convertible Notes contemplated herein, in full force and effect and are hereby confirmed in all respects and the Company and each Special Subsidiary hereby reaffirms each and every obligation thereunder and each of the waivers and consents made therein. The Company and each Special Subsidiary agree that all references in the May Security Agreement to the Convertible Notes shall mean and be a reference to the Convertible Notes as amended by the May Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement, and this Agreement and the Company and each Special Subsidiary agree that all references in the December Security Agreement to the Convertible Notes shall mean and be a reference to the Convertible Notes as amended by the December Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement. The Company and each Special Subsidiary represents and warrants that it has reread the May Security Agreement and the December Security Agreement and each of the obligations, waivers and consents set forth therein and that its execution of the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement and the agreements, acknowledgements and affirmations made herein and related hereto have been done after consultation with legal counsel and with full knowledge of its significance and consequences and in recognition of the fact that on September 26, 2005, the Company and each Special Subsidiary is, or in the absence of this Agreement, will continue to be, in default thereunder.


9. ACKNOWLEDGEMENT AND REAFFIRMATION OF GUARANTEES.


(a) Each Special Subsidiary hereby acknowledges and agrees that (i) the Guaranty, dated as of May 23, 2001, executed by each Special Subsidiary (the "MAY GUARANTY") and (ii) the Guaranty, dated as of December 19, 2001, executed by each Special Subsidiary (the "DECEMBER GUARANTY"), (X) are legal, valid and binding obligations of each Special Subsidiary and that no defenses to or claims against the enforcement of the May Guaranty or the December Guaranty or the exercise by the Agent of its rights thereunder exist, and (Y) are and shall continue, after the amendments to the May Convertible Notes and December Convertible Notes contemplated herein and in the March 2004 Letter Agreement and September 2004 Letter Agreement, in full force and effect and are hereby confirmed in all respects and each Subsidiary hereby reaffirms each and every obligation thereunder and each of the waivers and consents made therein. Each Special Subsidiary agrees that all references in the May Guaranty to the Convertible Notes, or words of similar import, shall mean and be a reference to the Convertible Notes as amended by the May Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement and each Special Subsidiary agrees that all references in the December Guaranty to the Convertible Notes, or words of similar import, shall mean and be a reference to the Convertible Notes as amended by the December Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement and this


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Agreement. Any reference in the May Guaranty to Secured Obligations or Convertible Note Loans shall include, to the extent applicable, the Convertible Notes as amended by the May Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement and any reference in the December Guaranty to Secured Obligations or Convertible Note Loans shall include, to the extent applicable, the Convertible Notes as amended by the December Note Amendments, the March 2004 Letter Agreement, the September 2004 Letter Agreement and this Agreement.


(b) Each Special Subsidiary represents and warrants that it has reread the May Guaranty and the December Guaranty and each of the obligations, waivers and consents set forth therein and that its affirmation of such obligations, waivers and consents herein have been made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived or released may diminish, destroy, or otherwise adversely affect rights that each Subsidiary otherwise may have against the Company, the Holders, the Agent or against any collateral pledged to the Holders, and that, under the circumstances, the waivers, releases and consents herein given a
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